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| Eurozone crisis live: Divided ECB leaves rates unchanged as speculation of Spanish bailout swirls | Eurozone crisis live: Divided ECB leaves rates unchanged as speculation of Spanish bailout swirls |
| (40 minutes later) | |
| 6.04pm: As well as the Spanish bond auction (see previous post), tomorrow will also see David Cameron hold talks with Angela Merkel. | |
| As Nicholas Watt, our chief political correspondent, explains here, the UK prime minister will tell Merkel the eurozone has just weeks to act to shore up the single currency. | |
| The Bank of England will also announce its latest decision on interest rates and quantitative easing, and Ben Benkanke will testify to the US Congress. | |
| 5.43pm: Portugal's Expresso newspaper is pointing out that bailed-out Portugal's 12-month sovereign bonds were actually trading at higher levels than the Spanish equivalent today. | 5.43pm: Portugal's Expresso newspaper is pointing out that bailed-out Portugal's 12-month sovereign bonds were actually trading at higher levels than the Spanish equivalent today. |
| The yield (effectively the interest rate) on 1-year Portuguese bonds hit a low of 3.5% earlier today, compared to Spain's 3.7% (although both bonds are pretty volatile movers). | The yield (effectively the interest rate) on 1-year Portuguese bonds hit a low of 3.5% earlier today, compared to Spain's 3.7% (although both bonds are pretty volatile movers). |
| As Giles Tremlett reports, Spain's borrowing costs are in the spotlight ahead of a crucial bond auction on Thursday. | As Giles Tremlett reports, Spain's borrowing costs are in the spotlight ahead of a crucial bond auction on Thursday. |
The same certainly does not go for ten year bond yields, where Portugal (11.3%) is at almost double Spain's 6.3% level on the secondary market, but it is a sign of growing concern about the larger Iberian country. Unfortunately for poor Portugal, Spain is a large part of its export market - so trouble there spells trouble at home. | The same certainly does not go for ten year bond yields, where Portugal (11.3%) is at almost double Spain's 6.3% level on the secondary market, but it is a sign of growing concern about the larger Iberian country. Unfortunately for poor Portugal, Spain is a large part of its export market - so trouble there spells trouble at home. |
| Spain will be tapping markets for ten year bonds tomorrow. It reportedly hopes to place them at yields of 5.85%, against 5.78% at the last auction. That will test to what extent, as budget minister Cristóbal Montoro warned yesterday, the market doors really are almost closed to Spain. | Spain will be tapping markets for ten year bonds tomorrow. It reportedly hopes to place them at yields of 5.85%, against 5.78% at the last auction. That will test to what extent, as budget minister Cristóbal Montoro warned yesterday, the market doors really are almost closed to Spain. |
| 5.03pm: Reuters is reporting that an investigation has been opened into Bankia, by the anti-corruption unit of Spain's public prosecutor's office. | 5.03pm: Reuters is reporting that an investigation has been opened into Bankia, by the anti-corruption unit of Spain's public prosecutor's office. |
| The follows allegations that it sold shares to investors when it knew it was in serious financial trouble. Bankia only floated on the stock market last summer, and less than a year later it is partially nationalised by the Spanish government and seeking a huge recapitalisation. | The follows allegations that it sold shares to investors when it knew it was in serious financial trouble. Bankia only floated on the stock market last summer, and less than a year later it is partially nationalised by the Spanish government and seeking a huge recapitalisation. |
| Furious small shareholders, who have seen their investments all but wiped out, had launched their own crowdsourced fundraising drive to raise money for legal action against the bank (more details here) | Furious small shareholders, who have seen their investments all but wiped out, had launched their own crowdsourced fundraising drive to raise money for legal action against the bank (more details here) |
| 4.38pm: European stock markets rallied strongly this afternoon, with most main indices finishing more than 2% higher. | 4.38pm: European stock markets rallied strongly this afternoon, with most main indices finishing more than 2% higher. |
| The rush into stocks saw money pour out of safe havens such as German and US debt, meaning their yields rose from their record low levels. | The rush into stocks saw money pour out of safe havens such as German and US debt, meaning their yields rose from their record low levels. |
| Traders cited three reasons - suggestions that the European Central Bank came close to cuting interest rates, optimism that a rescue deal for Spain's banking sector can be worked out, and rumours that the US Federal Reserve could launch a third bout of electronic money-printing (quantitative easing soon) after US productivity data was revised down. | Traders cited three reasons - suggestions that the European Central Bank came close to cuting interest rates, optimism that a rescue deal for Spain's banking sector can be worked out, and rumours that the US Federal Reserve could launch a third bout of electronic money-printing (quantitative easing soon) after US productivity data was revised down. |
| Ben Critchley of IG Index explained: | Ben Critchley of IG Index explained: |
| Both the Fed's vice-chairman and chairman will make speeches over the next 24 hours, and, so the theory goes, the spate of weaker US data means that intervention must be on its way. | Both the Fed's vice-chairman and chairman will make speeches over the next 24 hours, and, so the theory goes, the spate of weaker US data means that intervention must be on its way. |
| So, it's another example of traders piling into stocks in the hope that the crisis will prompt policymakers to take emergency action. You may dispair, and it appears that the editor of City AM agrees. | So, it's another example of traders piling into stocks in the hope that the crisis will prompt policymakers to take emergency action. You may dispair, and it appears that the editor of City AM agrees. |
| Allister Heath, not a natural hand-wringing liberal, tweeted that the market reaction to the crisis was 'pathetic'. | Allister Heath, not a natural hand-wringing liberal, tweeted that the market reaction to the crisis was 'pathetic'. |
| Financial markets behaving like a bunch of addicts convinced their next fix - bailouts or cheap central bank money - on its way. Pathetic. | Financial markets behaving like a bunch of addicts convinced their next fix - bailouts or cheap central bank money - on its way. Pathetic. |
| — Allister Heath (@AllisterHeath) June 6, 2012 | — Allister Heath (@AllisterHeath) June 6, 2012 |
| Anyway, here's the details: FTSE 100: up 123 points at 5384, + 2.36% DAX: up 131 points at 6101, + 2.21% CAC: up 77 points at 3063, + 2.6% IBEX: up 151 points at 6418, + 2.41% FTSE MIB: up 453 points at 13427, + 3.5% | Anyway, here's the details: FTSE 100: up 123 points at 5384, + 2.36% DAX: up 131 points at 6101, + 2.21% CAC: up 77 points at 3063, + 2.6% IBEX: up 151 points at 6418, + 2.41% FTSE MIB: up 453 points at 13427, + 3.5% |
| 4.09pm: Here's some expert reaction | 4.09pm: Here's some expert reaction |
| Nicholas Spiro of Spiro Sovereign Strategy | Nicholas Spiro of Spiro Sovereign Strategy |
| The ECB's wait-and-see stance is a kick in the teeth for the markets at such a perilous time for the eurozone. Investors got the worst of both worlds today: an admission on the part of the ECB that the crisis is worsening and no new policy measures to shore up banks and sovereigns. For the time being, the ECB is sitting on its hands as the bloc's economy and financial markets deteriorate further. Crisis management in the eurozone has become a cart and horses issue. The ECB wants politicians and policymakers to push ahead with plans for a fiscal and banking union before it comes to the rescue again. Germany wants treaty change and a political union before it agrees to any form of debt mutualisation. The markets, for their part, want all of the above as soon as possible. The message from today's ECB meeting is a worrying one: any mutualisation of eurozone debt is a long way off yet credible interim measures to shore up confidence will not be forthcoming for the time being. Mr Draghi believes that a convincing road map towards a full-fledged fiscal and banking union in the eurozone would in itself help restore confidence and bring down spreads. Yet how many road maps and master plans have already been announced over the past year or so, all to no avail? It will take much bolder and decisive action on the part of the ECB to staunch the panic | The ECB's wait-and-see stance is a kick in the teeth for the markets at such a perilous time for the eurozone. Investors got the worst of both worlds today: an admission on the part of the ECB that the crisis is worsening and no new policy measures to shore up banks and sovereigns. For the time being, the ECB is sitting on its hands as the bloc's economy and financial markets deteriorate further. Crisis management in the eurozone has become a cart and horses issue. The ECB wants politicians and policymakers to push ahead with plans for a fiscal and banking union before it comes to the rescue again. Germany wants treaty change and a political union before it agrees to any form of debt mutualisation. The markets, for their part, want all of the above as soon as possible. The message from today's ECB meeting is a worrying one: any mutualisation of eurozone debt is a long way off yet credible interim measures to shore up confidence will not be forthcoming for the time being. Mr Draghi believes that a convincing road map towards a full-fledged fiscal and banking union in the eurozone would in itself help restore confidence and bring down spreads. Yet how many road maps and master plans have already been announced over the past year or so, all to no avail? It will take much bolder and decisive action on the part of the ECB to staunch the panic |
| . | . |
| Howard Archer of IHS Global Insight | Howard Archer of IHS Global Insight |
| We expect the ECB to deliver an interest rate cut to 0.75% in July. Meanwhile, although the ECB announced that it would extend the provision of unlimited liquidity to banks until at least January 2013, it gave little indication that it would hold a third three-year refinancing operation following on from those held in December 2012 and February 2013 when banks took a total of 1,019 billion euro. The ECB is clearly looking to keep as much pressure as it can on politicians to take strong measures to combat the crises in Greece and Spain. | We expect the ECB to deliver an interest rate cut to 0.75% in July. Meanwhile, although the ECB announced that it would extend the provision of unlimited liquidity to banks until at least January 2013, it gave little indication that it would hold a third three-year refinancing operation following on from those held in December 2012 and February 2013 when banks took a total of 1,019 billion euro. The ECB is clearly looking to keep as much pressure as it can on politicians to take strong measures to combat the crises in Greece and Spain. |
| Glenn Uniacke of Moneycorp | Glenn Uniacke of Moneycorp |
| With its direct reference to increased downside risk, heightened uncertainty, flat GDP and a lack of momentum, Mario Draghi's press conference will have left many onlookers scratching their heads as to why rates were left on hold. The ECB's decision to leave rates at 1% did not tally with Draghi's bleak diagnosis of the Eurozone economy given in the press conference. A cut of 25bp or more would have been consistent with Draghi's summary of economic conditions in the single market, not a hold. | With its direct reference to increased downside risk, heightened uncertainty, flat GDP and a lack of momentum, Mario Draghi's press conference will have left many onlookers scratching their heads as to why rates were left on hold. The ECB's decision to leave rates at 1% did not tally with Draghi's bleak diagnosis of the Eurozone economy given in the press conference. A cut of 25bp or more would have been consistent with Draghi's summary of economic conditions in the single market, not a hold. |
| Christopher Vecchio of DailyFX | Christopher Vecchio of DailyFX |
| Hope seems to be what's driving trading activity. President Draghi's two key comments – that the ECB is watching data closely and is prepared to act, and that a few council members called for a rate cut today – suggest that another round of easing or at least some new stimuli efforts will be set forth has spurred the risk-on rally. | Hope seems to be what's driving trading activity. President Draghi's two key comments – that the ECB is watching data closely and is prepared to act, and that a few council members called for a rate cut today – suggest that another round of easing or at least some new stimuli efforts will be set forth has spurred the risk-on rally. |
| 3.57pm: Financial markets are rallying strongly now, seemingly on optimism that a deal to rescue Spain's banking sector could be hammered out. The FTSE 100's up 107 points, or over 2%, at 5367, with other markets showing similar gains. | 3.57pm: Financial markets are rallying strongly now, seemingly on optimism that a deal to rescue Spain's banking sector could be hammered out. The FTSE 100's up 107 points, or over 2%, at 5367, with other markets showing similar gains. |
| Update: The news that some members of the ECB governing council pushed for a rate cut this month is also being cited by traders. | Update: The news that some members of the ECB governing council pushed for a rate cut this month is also being cited by traders. |
| 3.42pm: There are reports that Charles Dallara, head of the International Institute of Finance, is stepping down from his post in a few months. | 3.42pm: There are reports that Charles Dallara, head of the International Institute of Finance, is stepping down from his post in a few months. |
| Dallara came to the public eye as the man representing Greece's creditors in its debt swap negotiations (often seen emerging from hotels rooms and offices, as the haggling over haircuts dragged on*). | Dallara came to the public eye as the man representing Greece's creditors in its debt swap negotiations (often seen emerging from hotels rooms and offices, as the haggling over haircuts dragged on*). |
| * - and on. | * - and on. |
| 3.03pm: The ECB now has a full recording of today's press conference, here. | 3.03pm: The ECB now has a full recording of today's press conference, here. |
| I've just replayed it, and here's Draghi's full response when he's asked about his role on the taskforce that is drafting proposals for a deeper eurozone fiscal union (as Ian Traynor wrote about here, in his article about plans for Federal Europe) | I've just replayed it, and here's Draghi's full response when he's asked about his role on the taskforce that is drafting proposals for a deeper eurozone fiscal union (as Ian Traynor wrote about here, in his article about plans for Federal Europe) |
| We've been tasked by the European Council, together with other institutions, to perform this. I don't think this would present any threat for the ECB independence. One has to see what outcome is coming out of this, and it's better to be part of the outcome than being outside the process. | We've been tasked by the European Council, together with other institutions, to perform this. I don't think this would present any threat for the ECB independence. One has to see what outcome is coming out of this, and it's better to be part of the outcome than being outside the process. |
| Having said that the work is in progress. It's potentially, as you can all understand, very important work, and we will certainly contribute with all our skills and expertise to this work. | Having said that the work is in progress. It's potentially, as you can all understand, very important work, and we will certainly contribute with all our skills and expertise to this work. |
| We also are all convinced that this work is, in a sense, the beginning of a process that will give substance to a European vision for the medium and long term. | We also are all convinced that this work is, in a sense, the beginning of a process that will give substance to a European vision for the medium and long term. |
| The other members of the task force are Herman Van Rompuy (president of the European Council), José Manuel Barroso (president of the European Commission) and Jean-Claude Juncker (head of the eurogroup) | The other members of the task force are Herman Van Rompuy (president of the European Council), José Manuel Barroso (president of the European Commission) and Jean-Claude Juncker (head of the eurogroup) |
| 2.47pm: The European Central Bank press conference has ended. Here's a rapid round-up of what we learned. | 2.47pm: The European Central Bank press conference has ended. Here's a rapid round-up of what we learned. |
| • The ECB's governing council was divided today over monetary policy. While rates were left unchanged at 1%, a minority of the governing council wanted a rate cut. This may make an early rate cut more likely | • The ECB's governing council was divided today over monetary policy. While rates were left unchanged at 1%, a minority of the governing council wanted a rate cut. This may make an early rate cut more likely |
| • Mario Draghi left his big bazooka at home. There was no hint of another huge injection of liquidity through long-term loans. Instead, the ECB is still watching how the first two LTRO's (explanation here) play out. | • Mario Draghi left his big bazooka at home. There was no hint of another huge injection of liquidity through long-term loans. Instead, the ECB is still watching how the first two LTRO's (explanation here) play out. |
| • The ECB still wants governments to do more. It is also sticking to its view that monetary policy alone cannot fix the problems in the eurozone, and does not welcome criticism from abroad. | • The ECB still wants governments to do more. It is also sticking to its view that monetary policy alone cannot fix the problems in the eurozone, and does not welcome criticism from abroad. |
| • Federal Europe is getting closer. Draghi confirmed that he is involved with talks to develop closer fiscal union across the eurozone. | • Federal Europe is getting closer. Draghi confirmed that he is involved with talks to develop closer fiscal union across the eurozone. |
| 2.33pm: Next question for Mario Draghi -- if the ECB cut rates next month, borrowing costs would be lower than at the time of the collapse of Lehman Brothers, so does that mean the crisis is as bad? | 2.33pm: Next question for Mario Draghi -- if the ECB cut rates next month, borrowing costs would be lower than at the time of the collapse of Lehman Brothers, so does that mean the crisis is as bad? |
| No, says the ECB president, who insists that "this situation is not like Lehman, it is far away from that." | No, says the ECB president, who insists that "this situation is not like Lehman, it is far away from that." |
| Draghi argues that policymakers have learned valuable lessons from the financial crisis which began in 2008. The way in which the collapse of Lehman Brothers shook the financial system was not immediately understood. "Now it's different, we know the problems," he adds. | Draghi argues that policymakers have learned valuable lessons from the financial crisis which began in 2008. The way in which the collapse of Lehman Brothers shook the financial system was not immediately understood. "Now it's different, we know the problems," he adds. |
| 2.29pm: What message does Draghi have for people around the world who are watching their employment prospects, or retirement prospects, eroded by the crisis raging in the eurozone, asks the Wall Street Journal. | 2.29pm: What message does Draghi have for people around the world who are watching their employment prospects, or retirement prospects, eroded by the crisis raging in the eurozone, asks the Wall Street Journal. |
| Draghi does not appear to appreciate this question One Little Bit. | Draghi does not appear to appreciate this question One Little Bit. |
| He replies that it is "inevitable that Europe's problems have some impact on the global system, as it is the second largest economy." | He replies that it is "inevitable that Europe's problems have some impact on the global system, as it is the second largest economy." |
| But he also questions whether the problems of a country with a large and rising national debt (eg America), all depend on Europe. It's not right to blame all the problems of the global economy on Europe, he argues. | But he also questions whether the problems of a country with a large and rising national debt (eg America), all depend on Europe. It's not right to blame all the problems of the global economy on Europe, he argues. |
| 2.17pm: It's official - the European Central Bank's governing council was split over whether to cut interest rates today. | 2.17pm: It's official - the European Central Bank's governing council was split over whether to cut interest rates today. |
| Mario Draghi tells the Frankfurt press conference that "a few members" would have preferred a rate cut today "but not many". | Mario Draghi tells the Frankfurt press conference that "a few members" would have preferred a rate cut today "but not many". |
| The ECB president confirmed that the ECB has not decided to restart its policy of buying government bonds. That programme has now been suspended for the last 12 weeks. | The ECB president confirmed that the ECB has not decided to restart its policy of buying government bonds. That programme has now been suspended for the last 12 weeks. |
| 2.12pm: Arthur Beesley of the Irish Times asks Mario Draghi for his views on the Irish referendum vote last week. Will Ireland now get some relief on the terms of its aid package from Europe? | 2.12pm: Arthur Beesley of the Irish Times asks Mario Draghi for his views on the Irish referendum vote last week. Will Ireland now get some relief on the terms of its aid package from Europe? |
| Draghi says that he welcomes Ireland's decision to vote in favour of the EU Fiscal pact, but insists there is "no horse trading" between the ECB and national governments. He adds: | Draghi says that he welcomes Ireland's decision to vote in favour of the EU Fiscal pact, but insists there is "no horse trading" between the ECB and national governments. He adds: |
| There has never been a quid pro quo between monetary policy and government policy.... | There has never been a quid pro quo between monetary policy and government policy.... |
| This does feel harsh on Ireland - a country that's doing pretty much everything asked of it by Europe (ditto Portugal). | This does feel harsh on Ireland - a country that's doing pretty much everything asked of it by Europe (ditto Portugal). |
| 2.10pm: Looking to America briefly, the US markets open soon and investors appear to be reassured by the news from Europe. | 2.10pm: Looking to America briefly, the US markets open soon and investors appear to be reassured by the news from Europe. |
| Wall Street correspondent Dominic Rushe reports: | Wall Street correspondent Dominic Rushe reports: |
| Yesterday the Dow snapped a four day losing streak to close up 26.49 points, or 0.22%, to 12127.95. At the moment the Dow futures, which as we always point out are a shaky indicator, are up suggesting markets will rise again. It's like a little mini-holiday from Euro-doom. How long will it last? | Yesterday the Dow snapped a four day losing streak to close up 26.49 points, or 0.22%, to 12127.95. At the moment the Dow futures, which as we always point out are a shaky indicator, are up suggesting markets will rise again. It's like a little mini-holiday from Euro-doom. How long will it last? |
| Perhaps not too long.... the euro has already dropped back from its earlier highs as it became clear that Mario Draghi will not announce any major policy decisions today. | Perhaps not too long.... the euro has already dropped back from its earlier highs as it became clear that Mario Draghi will not announce any major policy decisions today. |
| 2.04pm: What about Spain? Mario Draghi won't be lured into saying too much, but states that the ECB cannot push governments into accessing the European Financial Stability Fund. | 2.04pm: What about Spain? Mario Draghi won't be lured into saying too much, but states that the ECB cannot push governments into accessing the European Financial Stability Fund. |
| A decision on whether to apply to the EFSF must be based on "realistic assessment of banks' needs", he adds. | A decision on whether to apply to the EFSF must be based on "realistic assessment of banks' needs", he adds. |
| As my colleague Giles Tremlett explains here, the scale of the recapitalisation needed for Spain should be clearer in a couple of weeks. | As my colleague Giles Tremlett explains here, the scale of the recapitalisation needed for Spain should be clearer in a couple of weeks. |
| 1.55pm: Mario Draghi is asked about his role as a member of a "gang of four" who are drawing up proposals for a deeper eurozone fiscal union (as reported in the Guardian on Tuesday, these proposals - which could lead to a Federal Europe - will be presented at the end of the month). | 1.55pm: Mario Draghi is asked about his role as a member of a "gang of four" who are drawing up proposals for a deeper eurozone fiscal union (as reported in the Guardian on Tuesday, these proposals - which could lead to a Federal Europe - will be presented at the end of the month). |
| Draghi argues that this work can play an important role in Europe's future, telling the ECB press conference that he (along with the European council president, the commission chief and the head of the eurogroup of 17 finance ministers) have been "tasked by other European insitutions" to do this work. | Draghi argues that this work can play an important role in Europe's future, telling the ECB press conference that he (along with the European council president, the commission chief and the head of the eurogroup of 17 finance ministers) have been "tasked by other European insitutions" to do this work. |
| He also denied that there is any threat to ECB independence, despite the political context to the work. | He also denied that there is any threat to ECB independence, despite the political context to the work. |
| He added: | He added: |
| Having said that, the work is in progress. It is potentially a very important work. We will certainly contribute with all our skills and expertise to this work. | Having said that, the work is in progress. It is potentially a very important work. We will certainly contribute with all our skills and expertise to this work. |
| It will give substance to the European vision in the medium and long term. | It will give substance to the European vision in the medium and long term. |
| 1.50pm: Interesting! Mario Draghi is asked whether today's decision to leave interest rates unchanged at 1% was unanimous. | 1.50pm: Interesting! Mario Draghi is asked whether today's decision to leave interest rates unchanged at 1% was unanimous. |
| He replies that the decision was taken "by consensus". That sounds like code for "not unanimous", or at the least that there was a robust exchange of views over the issue. | He replies that the decision was taken "by consensus". That sounds like code for "not unanimous", or at the least that there was a robust exchange of views over the issue. |
| He is also quizzed about whether the ECN would launch a new Long-Term Refinancing Operation (where banks are offered cheap loans on a three-year timescale). Draghi argues that another LTRO is not the right solution now - and hints that national governments should do more. | He is also quizzed about whether the ECN would launch a new Long-Term Refinancing Operation (where banks are offered cheap loans on a three-year timescale). Draghi argues that another LTRO is not the right solution now - and hints that national governments should do more. |
| He says: | He says: |
| The issue now is whether these LTROs would be effective..... there is plenty of liquidity in some ares, and a lack in others. We need to ask why? | The issue now is whether these LTROs would be effective..... there is plenty of liquidity in some ares, and a lack in others. We need to ask why? |
| Some of these shortages have nothing to do with monetary policy..... It is not right for monetary policy to fill in for other's lack of action. | Some of these shortages have nothing to do with monetary policy..... It is not right for monetary policy to fill in for other's lack of action. |
| 1.45pm: Onto questions! Draghi is asked about how the ECB took its decision, in a time of near panic in the eurozone. | 1.45pm: Onto questions! Draghi is asked about how the ECB took its decision, in a time of near panic in the eurozone. |
| The ECB president tells the Frankfurt press conference that the situation is very serious, with the interbank market now "disfunctional". | The ECB president tells the Frankfurt press conference that the situation is very serious, with the interbank market now "disfunctional". |
| He insists that the ECB "stands ready" to take any actions that are needed, but argues that there are "conflicting signals" between hard and soft data. The softer data, he says, are the ones that point most strongly to a economic downturn. | He insists that the ECB "stands ready" to take any actions that are needed, but argues that there are "conflicting signals" between hard and soft data. The softer data, he says, are the ones that point most strongly to a economic downturn. |
| 1.41pm: In terms of monetary decisions, the ECB did decide to extend its "fixed-rate, full-allotment lending policy" until the middle of January, 2013. | 1.41pm: In terms of monetary decisions, the ECB did decide to extend its "fixed-rate, full-allotment lending policy" until the middle of January, 2013. |
| That is meant to maintain liquidity in the European banking sector, but it's the major new policy change that some have been looking for. | That is meant to maintain liquidity in the European banking sector, but it's the major new policy change that some have been looking for. |
| 1.36pm: The European Central Bank has announced its latest growth projections for the eurozone. It expects growth of -0.5% and +0.3% this year, which I think is in line with the previous "central forecast" of -0.1%. | 1.36pm: The European Central Bank has announced its latest growth projections for the eurozone. It expects growth of -0.5% and +0.3% this year, which I think is in line with the previous "central forecast" of -0.1%. |
| For 2013, it predicts growth between zero and 2.0% (that's a downgrade on last time's forecast of 0.0% To 2.2%). | For 2013, it predicts growth between zero and 2.0% (that's a downgrade on last time's forecast of 0.0% To 2.2%). |
| The increased downside risks to the European economy, the ECB president says, come from the debt crisis in Europe and its growing potential to spill over to the wider economy. | The increased downside risks to the European economy, the ECB president says, come from the debt crisis in Europe and its growing potential to spill over to the wider economy. |
| He cites unemployment as another threat to underlying growth in the Eurozone. | He cites unemployment as another threat to underlying growth in the Eurozone. |
| 1.33pm: The first key headline from the European Central Bank's press conference is that the ECB now sees "increased downside risks to economic outlook" (yet it didn't cut rates at today's meeting). | 1.33pm: The first key headline from the European Central Bank's press conference is that the ECB now sees "increased downside risks to economic outlook" (yet it didn't cut rates at today's meeting). |
| Inflation, though, is likely to remain above 2% in 2012 -- ie, above the ECB's target. | Inflation, though, is likely to remain above 2% in 2012 -- ie, above the ECB's target. |
| 1.31pm: The ECB press conference is beginning in Frankfurt now. All eyes are on Mario Draghi to see if he announces any new unorthodox monetary policy.... | 1.31pm: The ECB press conference is beginning in Frankfurt now. All eyes are on Mario Draghi to see if he announces any new unorthodox monetary policy.... |
| 1.05pm: As we wait for the ECB press conference in Frankfurt at 1.30pm BST (2.30pm CEST), attention is turning back to Spain. | 1.05pm: As we wait for the ECB press conference in Frankfurt at 1.30pm BST (2.30pm CEST), attention is turning back to Spain. |
| While Le Monde is reporting that EU officials are beavering away at a bailout plan, our own Giles Tremlett has analysed the situation and explains that Spain does not plan to ask for help for its banks for at least two weeks – if not for a couple of months. And as blogged earlier (10.35am), Spanish officials are denying that a bailout is close. | While Le Monde is reporting that EU officials are beavering away at a bailout plan, our own Giles Tremlett has analysed the situation and explains that Spain does not plan to ask for help for its banks for at least two weeks – if not for a couple of months. And as blogged earlier (10.35am), Spanish officials are denying that a bailout is close. |
| Giles has the latest: | Giles has the latest: |
| Finance minister Luis de Guindos has just confirmed that Spain will not make any moves until the independent audits of banking assets that it has commissioned are completed. | Finance minister Luis de Guindos has just confirmed that Spain will not make any moves until the independent audits of banking assets that it has commissioned are completed. |
| "From that basis, the Spanish government will decide what measures must be taken to recapitalise banks," he said. | "From that basis, the Spanish government will decide what measures must be taken to recapitalise banks," he said. |
| A first report is due in ten to fifteen days, meaning either just before or in the week after the Greek elections. A second, more complete report, should come in August. It is not clear which of the two reports De Guindos was referring to. | A first report is due in ten to fifteen days, meaning either just before or in the week after the Greek elections. A second, more complete report, should come in August. It is not clear which of the two reports De Guindos was referring to. |
| The government is convinced that an IMF report to be released on Monday will show that Spanish banks need much less capital than analysts have been predicting. | The government is convinced that an IMF report to be released on Monday will show that Spanish banks need much less capital than analysts have been predicting. |
| De Guindos claimed that the independent valuers were likely to agree with the IMF. | De Guindos claimed that the independent valuers were likely to agree with the IMF. |
| 12.45pm: Breaking news - the European Central Bank has left eurozone interest rates unchanged at 1%. Largely as expected (although a small cadre of economists had predicted a rate cut - see 8.06am). | 12.45pm: Breaking news - the European Central Bank has left eurozone interest rates unchanged at 1%. Largely as expected (although a small cadre of economists had predicted a rate cut - see 8.06am). |
| There are also no other changes to report. Now attention will turn to Mario Draghi's press conference in 45 minutes time. | There are also no other changes to report. Now attention will turn to Mario Draghi's press conference in 45 minutes time. |
| In the meantime, the markets remain calm, with the euro still up around half a cent against the dollar at $1.298. | In the meantime, the markets remain calm, with the euro still up around half a cent against the dollar at $1.298. |
| World has not ended | World has not ended |
| — Chris Adams (@chrisadamsmkts) June 6, 2012 | — Chris Adams (@chrisadamsmkts) June 6, 2012 |
| 12.41pm: The pound has rallied strongly against the US dollar today, up one and a quarter cents to $1.5499. That only claws back some recent losses, but does suggests traders are less nervous (the US dollar typically strengthening when traders get more nervous) | 12.41pm: The pound has rallied strongly against the US dollar today, up one and a quarter cents to $1.5499. That only claws back some recent losses, but does suggests traders are less nervous (the US dollar typically strengthening when traders get more nervous) |
| 12.14pm: Over to Greece where our correspondent Helena Smith says there are unexpected developments on the political scene ahead of this month's crucial election in the debt stricken country. Helena writes: | 12.14pm: Over to Greece where our correspondent Helena Smith says there are unexpected developments on the political scene ahead of this month's crucial election in the debt stricken country. Helena writes: |
| Alexis Tsipras, the radical leftist leader who has unnerved leaders both in and out of the euro zone by vowing to "tear up" the bailout agreement Greece has signed up to with the EU and IMF, has stunned political observers with a decision to meet G20 ambassadors in Athens this morning. | Alexis Tsipras, the radical leftist leader who has unnerved leaders both in and out of the euro zone by vowing to "tear up" the bailout agreement Greece has signed up to with the EU and IMF, has stunned political observers with a decision to meet G20 ambassadors in Athens this morning. |
| Five days after the head of the Syriza party pledged to "cancel" the memorandum outlining the onerous terms on which Greece receives cash injections from foreign lenders, he has taken the unexpected step of "explaining" his policies with representatives from each of the G20 countries stationed in Athens. As I type, Tsipras is locked in closed door talks with the ambassadors at the Zappeion conference centre. Could the 37-year-old firebrand be changing his spots? The news has been received as nothing short of a volte-face by political observers. | Five days after the head of the Syriza party pledged to "cancel" the memorandum outlining the onerous terms on which Greece receives cash injections from foreign lenders, he has taken the unexpected step of "explaining" his policies with representatives from each of the G20 countries stationed in Athens. As I type, Tsipras is locked in closed door talks with the ambassadors at the Zappeion conference centre. Could the 37-year-old firebrand be changing his spots? The news has been received as nothing short of a volte-face by political observers. |
| "There is a clear change of strategy by Syriza," veteran commentator Nikos Evangelatos told Flash radio. | "There is a clear change of strategy by Syriza," veteran commentator Nikos Evangelatos told Flash radio. |
| "The change of line is more than obvious from the daily statements of leading party cadres on the party's economic program." | "The change of line is more than obvious from the daily statements of leading party cadres on the party's economic program." |
| Polls placing Syriza's conglomeration of leftist forces either ahead, or neck and neck with the "pro-bailout, pro-European" centre right New Democracy party appear to account for the shift. | Polls placing Syriza's conglomeration of leftist forces either ahead, or neck and neck with the "pro-bailout, pro-European" centre right New Democracy party appear to account for the shift. |
| Helena continues: | Helena continues: |
| The telegenic Tsipras emerged as the surprise runner up in Greece's inconclusive May 6 poll promising Greeks that they could go back to what they had in the past: better wage and pension packets and secure public sector jobs. | The telegenic Tsipras emerged as the surprise runner up in Greece's inconclusive May 6 poll promising Greeks that they could go back to what they had in the past: better wage and pension packets and secure public sector jobs. |
| On Friday, Tsipras said he would not only rescind the controversial loan agreement and its various enforcement laws but reinstate the minimum wage and unemployment benefits. But with the realization that it could soon be in power, Syriza appears to be taming its fiery anti-austerity, anti-bailout rhetoric. | On Friday, Tsipras said he would not only rescind the controversial loan agreement and its various enforcement laws but reinstate the minimum wage and unemployment benefits. But with the realization that it could soon be in power, Syriza appears to be taming its fiery anti-austerity, anti-bailout rhetoric. |
| Instead, in the count-down to the June 17 election, there is growing evidence that it does not want to be boxed in a corner where rescue funds dry up simply because creditors run out of patience with Greece. As a result, the party's senior economic strategists are now at pains to assuage concerns, both at home and abroad, that Syriza will pursue any policy that will endanger the debt-stricken country's place in the single currency. Yiannis Dragazakis, the leftist MP widely credited with drawing up the coalition's economic program, went as far as saying that Syriza's fiscal policies were not only "flexible" but would take into account "daily reality." "We [in Syriza] are not talking about unilateral actions," he said referring to fears that, if in power, the party would automatically revoke the bailout accord. "On the contrary, we recognize that we have an institutional inter-dependence in the European Union and as such we don't speak about unilateral actions but about renegotiating everything – except if we are forced to act unilaterally." | Instead, in the count-down to the June 17 election, there is growing evidence that it does not want to be boxed in a corner where rescue funds dry up simply because creditors run out of patience with Greece. As a result, the party's senior economic strategists are now at pains to assuage concerns, both at home and abroad, that Syriza will pursue any policy that will endanger the debt-stricken country's place in the single currency. Yiannis Dragazakis, the leftist MP widely credited with drawing up the coalition's economic program, went as far as saying that Syriza's fiscal policies were not only "flexible" but would take into account "daily reality." "We [in Syriza] are not talking about unilateral actions," he said referring to fears that, if in power, the party would automatically revoke the bailout accord. "On the contrary, we recognize that we have an institutional inter-dependence in the European Union and as such we don't speak about unilateral actions but about renegotiating everything – except if we are forced to act unilaterally." |
| Syriza's relations with most of the G20 countries – starting with Germany – are not considered to be the best. But a senior party member said it was essential that ambassadors from the bloc "understand we are not a threat." Greece's coffers are drying up fast – with tax revenues having come to a grinding halt because of the political uncertainty engulfing the nation. Former prime minister Lucas Papademos has predicted that with €1bn euro in rescue funds withheld by foreign lenders over fears of the country reneging on its commitments, Athens has enough money to survive only until mid July. After that it will be forced to declare bankruptcy, with the most vulnerable in Greek society once again suffering the most. | Syriza's relations with most of the G20 countries – starting with Germany – are not considered to be the best. But a senior party member said it was essential that ambassadors from the bloc "understand we are not a threat." Greece's coffers are drying up fast – with tax revenues having come to a grinding halt because of the political uncertainty engulfing the nation. Former prime minister Lucas Papademos has predicted that with €1bn euro in rescue funds withheld by foreign lenders over fears of the country reneging on its commitments, Athens has enough money to survive only until mid July. After that it will be forced to declare bankruptcy, with the most vulnerable in Greek society once again suffering the most. |
| Syriza, say analysts, has clearly seen the writing on the wall. This morning's unexpected meeting is further proof that Greece's eclectic band of leftists in no way want to be blamed with a potential exit from the euro zone – a club Athens took great pride in joining in 2001. | Syriza, say analysts, has clearly seen the writing on the wall. This morning's unexpected meeting is further proof that Greece's eclectic band of leftists in no way want to be blamed with a potential exit from the euro zone – a club Athens took great pride in joining in 2001. |
| 12.10pm: In Westminster, government officials have said that UK prime minister David Cameron and US president Barack Obama agreed last night that an "immediate plan" is needed for Europe. | 12.10pm: In Westminster, government officials have said that UK prime minister David Cameron and US president Barack Obama agreed last night that an "immediate plan" is needed for Europe. |
| No 10: PM and Obama agreed in phone call on need for immediate plan to tackle e'zone crisis | No 10: PM and Obama agreed in phone call on need for immediate plan to tackle e'zone crisis |
| — Nicholas Watt (@nicholaswatt) June 6, 2012 | — Nicholas Watt (@nicholaswatt) June 6, 2012 |
| 12.03pm: Eurozone policy-makers are busy working up a Spanish bailout to be triggered within a couple of weeks, according to today's Le Monde in Paris. | 12.03pm: Eurozone policy-makers are busy working up a Spanish bailout to be triggered within a couple of weeks, according to today's Le Monde in Paris. |
| Europe editor Ian Traynor reports: | Europe editor Ian Traynor reports: |
| It still looks as though PM Mariano Rajoy will need to request it, though, and the paper says the timing for that could come on June 18, the day after the fateful Greek election when the IMF is expected to deliver a damning verdict on the dismal state of Spain's banks. | It still looks as though PM Mariano Rajoy will need to request it, though, and the paper says the timing for that could come on June 18, the day after the fateful Greek election when the IMF is expected to deliver a damning verdict on the dismal state of Spain's banks. |
| In today's lunchtime edition, Le Monde's well-informed Brussels correspondent, Philippe Ricard, reports that yesterday's video-conference of G-7 finance ministers piled the pressure on the eurozone to get the bailout ready, that officials will be working on the fine print through the coming weekend, that it could be activated even before the Greek election, but that the more likely timing is the end of the month. | In today's lunchtime edition, Le Monde's well-informed Brussels correspondent, Philippe Ricard, reports that yesterday's video-conference of G-7 finance ministers piled the pressure on the eurozone to get the bailout ready, that officials will be working on the fine print through the coming weekend, that it could be activated even before the Greek election, but that the more likely timing is the end of the month. |
| Rajoy is expected to go to Rome for talks with Angela Merkel, Francois Hollande, and Mario Monti on June 22. Eurozone finance ministers meet the day before that. | Rajoy is expected to go to Rome for talks with Angela Merkel, Francois Hollande, and Mario Monti on June 22. Eurozone finance ministers meet the day before that. |
| Reuters, meanwhile, is reporting that EU and German officials are 'urgently exploring ways' to rescue Spain's banks. The key challenge for lawyers -- can they find a loophole in European treaties that would allow Madrid to get money from the euro zone's rescue funds without the stigma of a full economic adjustment program. | Reuters, meanwhile, is reporting that EU and German officials are 'urgently exploring ways' to rescue Spain's banks. The key challenge for lawyers -- can they find a loophole in European treaties that would allow Madrid to get money from the euro zone's rescue funds without the stigma of a full economic adjustment program. |
| 11.38am: EU officials are insisting that they have not received an aid request from Spain for its banking sector | 11.38am: EU officials are insisting that they have not received an aid request from Spain for its banking sector |
| Our European editor, Ian Traynor, reports that commissioner Michel Barnier said today that nothing was on the table right now. | Our European editor, Ian Traynor, reports that commissioner Michel Barnier said today that nothing was on the table right now. |
| eurozone spanish bank bailout "not possible today" - barnier | eurozone spanish bank bailout "not possible today" - barnier |
| — Ian Traynor (@traynorbrussels) June 6, 2012 | — Ian Traynor (@traynorbrussels) June 6, 2012 |
| France's finance minister, Pierre Moscovici, weighed in on Spain's side in the last few minutes, saying the French government would favour using Europe's bailout funds to recapisalise Spanish banks directly, if there were "appropriate supervision conditions". | France's finance minister, Pierre Moscovici, weighed in on Spain's side in the last few minutes, saying the French government would favour using Europe's bailout funds to recapisalise Spanish banks directly, if there were "appropriate supervision conditions". |
| Speaking of Barnier, he also announced details of the EU's new plans for banking reform today. The proposed permanent framework includes new powers for regulators to close failing banks, and to force losses onto bondholders. There would also be closer ties across Europe -- which could pave the way to full banking union. | Speaking of Barnier, he also announced details of the EU's new plans for banking reform today. The proposed permanent framework includes new powers for regulators to close failing banks, and to force losses onto bondholders. There would also be closer ties across Europe -- which could pave the way to full banking union. |
| 11.22am: It's not all good news for Germany, though - industrial output in Europe's largest economy fell by 2.2% in April, more than twice as large a drop as expected. | 11.22am: It's not all good news for Germany, though - industrial output in Europe's largest economy fell by 2.2% in April, more than twice as large a drop as expected. |
| The German government played down the significance of the news, pointing to the 2.2% jump in output in March and suggesting that many Germans took the last day of the month off to create a four-day weekend*, with May Day being celebrated on Tuesday 1 May [not the following Monday, as in the UK] | The German government played down the significance of the news, pointing to the 2.2% jump in output in March and suggesting that many Germans took the last day of the month off to create a four-day weekend*, with May Day being celebrated on Tuesday 1 May [not the following Monday, as in the UK] |
| * - so we Brits shouldn't get too much stick for the extra-long Jubilee weekend jamboree. | * - so we Brits shouldn't get too much stick for the extra-long Jubilee weekend jamboree. |
| Taken alongside the very weak Spanish industrial data this morning, which showed an 8.3% drop in output (see 8.18am), the clear message is that Europe's manufacturing base suffered a bad April - as the crisis began to intensify. | Taken alongside the very weak Spanish industrial data this morning, which showed an 8.3% drop in output (see 8.18am), the clear message is that Europe's manufacturing base suffered a bad April - as the crisis began to intensify. |
| 10.54am: Germany's borrowing costs continue to fall to record levels as investors seek a safe place for the money. | 10.54am: Germany's borrowing costs continue to fall to record levels as investors seek a safe place for the money. |
| The Bundesbank sold €3.98bn worth of five-year bonds this morning, at an average yield of just 0.41% (down from 0.56% at a previous auction). That's the lowest return ever accepted by investors when buying this kind of German debt. | The Bundesbank sold €3.98bn worth of five-year bonds this morning, at an average yield of just 0.41% (down from 0.56% at a previous auction). That's the lowest return ever accepted by investors when buying this kind of German debt. |
| Analysts weren't terribly surprised by another successful German bond auction. | Analysts weren't terribly surprised by another successful German bond auction. |
| Annalisa Piazza of Newedge Strategy told Reuters that the auction shows there is still strong demand for 'safe-haven paper': | Annalisa Piazza of Newedge Strategy told Reuters that the auction shows there is still strong demand for 'safe-haven paper': |
Markets are still pricing in risks of a euro break-up and today's auction is a clear sign that dealers are still worried about it. | Markets are still pricing in risks of a euro break-up and today's auction is a clear sign that dealers are still worried about it. |
| 10.35am: Back to Spain, where economy minister Luis de Guindos has attempted to calm speculation that a banking bailout is close. | 10.35am: Back to Spain, where economy minister Luis de Guindos has attempted to calm speculation that a banking bailout is close. |
| De Guindos told reporters in Brussels that nothing would happen regarding recapitalisation until the ongoing audit of the Spanish banking sector had been completed. That assessment could be completed by the end of June, and analysts believe it could find a black hole of up to €70bn. A separate IMF survey is due on 11 June. | De Guindos told reporters in Brussels that nothing would happen regarding recapitalisation until the ongoing audit of the Spanish banking sector had been completed. That assessment could be completed by the end of June, and analysts believe it could find a black hole of up to €70bn. A separate IMF survey is due on 11 June. |
| De Guindos promised that he'd not discussed a rescue deal during his trip to Brussels, and also pledged that Spain was not getting ready to ask for help. | De Guindos promised that he'd not discussed a rescue deal during his trip to Brussels, and also pledged that Spain was not getting ready to ask for help. |
I have absolutely not discussed any intervention in Spain's banks today... we are not preparing anything... | I have absolutely not discussed any intervention in Spain's banks today... we are not preparing anything... |
| But in the City, pragmatic analysts predict Spain can't hold this position for long. Gary Jenkins of SwordFish Research writes: | But in the City, pragmatic analysts predict Spain can't hold this position for long. Gary Jenkins of SwordFish Research writes: |
What they want is to have their cake and eat it, with the ESM /EFSF providing money directly to the banks. The problem with this is not just the basic fact that it is not allowed (rules can be changed…) but the precedent that it would set and the longer term implications of any such move. | What they want is to have their cake and eat it, with the ESM /EFSF providing money directly to the banks. The problem with this is not just the basic fact that it is not allowed (rules can be changed…) but the precedent that it would set and the longer term implications of any such move. |
| Nowadays Moral Hazard might just be Chelsea's latest signing but is it really a good idea to have a situation where banks in Europe have the financial backstop of a European institution where capital is available in a time of distress instead of the market discipline of failure? | Nowadays Moral Hazard might just be Chelsea's latest signing but is it really a good idea to have a situation where banks in Europe have the financial backstop of a European institution where capital is available in a time of distress instead of the market discipline of failure? |
| 10.14am: The Financial Times' Martin Wolf is on goose-pimplingly good form today, with a column that examines the "contained depression" which the west is currently experiencing. | 10.14am: The Financial Times' Martin Wolf is on goose-pimplingly good form today, with a column that examines the "contained depression" which the west is currently experiencing. |
| Headlined "Panic has become all too rational", Wolf argues that all the ingredients are in place for a repeat of the Great Depression. Here's a flavour: | Headlined "Panic has become all too rational", Wolf argues that all the ingredients are in place for a repeat of the Great Depression. Here's a flavour: |
| How much pain can the countries under stress endure? Nobody knows. What would happen if a country left the eurozone? Nobody knows. Might even Germany consider exit? Nobody knows. What is the long-run strategy for exit from the crises? Nobody knows. Given such uncertainty, panic is, alas, rational. A fiat currency backed by heterogeneous sovereigns is irremediably fragile. | How much pain can the countries under stress endure? Nobody knows. What would happen if a country left the eurozone? Nobody knows. Might even Germany consider exit? Nobody knows. What is the long-run strategy for exit from the crises? Nobody knows. Given such uncertainty, panic is, alas, rational. A fiat currency backed by heterogeneous sovereigns is irremediably fragile. |
| Before now, I had never really understood how the 1930s could happen. Now I do. All one needs are fragile economies, a rigid monetary regime, intense debate over what must be done, widespread belief that suffering is good, myopic politicians, an inability to co-operate and failure to stay ahead of events. Perhaps the panic will vanish. But investors who are buying bonds at current rates are indicating a deep aversion to the downside risks. Policy makers must eliminate this panic, not stoke it. | Before now, I had never really understood how the 1930s could happen. Now I do. All one needs are fragile economies, a rigid monetary regime, intense debate over what must be done, widespread belief that suffering is good, myopic politicians, an inability to co-operate and failure to stay ahead of events. Perhaps the panic will vanish. But investors who are buying bonds at current rates are indicating a deep aversion to the downside risks. Policy makers must eliminate this panic, not stoke it. |
| In the eurozone, they are failing to do so. If those with good credit refuse to support those under pressure, when the latter cannot save themselves, the system will surely perish. Nobody knows what damage this would do to the world economy. But who wants to find out? | In the eurozone, they are failing to do so. If those with good credit refuse to support those under pressure, when the latter cannot save themselves, the system will surely perish. Nobody knows what damage this would do to the world economy. But who wants to find out? |
| Full piece here (the FT's semi-porous paywall lets you access a small number of articles for free each month). | Full piece here (the FT's semi-porous paywall lets you access a small number of articles for free each month). |
| 10.01am: Just in -- eurozone GDP was flat in the first quarter of 2012 compared with the prevous quarter, Eurostat just announced. That is confirmation of the initial estimate. | 10.01am: Just in -- eurozone GDP was flat in the first quarter of 2012 compared with the prevous quarter, Eurostat just announced. That is confirmation of the initial estimate. |
| However, on a year-on-year basis, it now believes that GDP fell by 0.1% (rather than 0% as first estimated last month). | However, on a year-on-year basis, it now believes that GDP fell by 0.1% (rather than 0% as first estimated last month). |
| So, confirmation that the eurozone was stagnant rather than actually shrinking in the first three months of 2012. But that's mainly due to strong growth in Germany - while many countries including Italy, Spain, Greece, Portugal and the Netherlands all contracted. | So, confirmation that the eurozone was stagnant rather than actually shrinking in the first three months of 2012. But that's mainly due to strong growth in Germany - while many countries including Italy, Spain, Greece, Portugal and the Netherlands all contracted. |
| GDP across the wider European Union was also flat, with the UK shrinking by 0.3%. | GDP across the wider European Union was also flat, with the UK shrinking by 0.3%. |
| 9.51am: Financial markets continue to rally this morning, with Spain's IBEX jumping 3%, the French CAC and German DAX up around 2%, and the FTSE 100 gaining 72 points or 1.4%. | 9.51am: Financial markets continue to rally this morning, with Spain's IBEX jumping 3%, the French CAC and German DAX up around 2%, and the FTSE 100 gaining 72 points or 1.4%. |
| Paul Donovan, analyst at UBS, is rather surprised by the optimism gushing around the financial world today, following yesterday's teleconfence call conducted by G7 finance ministers. | Paul Donovan, analyst at UBS, is rather surprised by the optimism gushing around the financial world today, following yesterday's teleconfence call conducted by G7 finance ministers. |
| Donovan told clients that: | Donovan told clients that: |
G7 participants could have texted each other a smiley face emoticon and it would have had the same impact on the global economy. | G7 participants could have texted each other a smiley face emoticon and it would have had the same impact on the global economy. |
| I suspect the mood on the G7 call was closer to :-0 than :-), with one G7 members predicting a 'Germany bashing session' | I suspect the mood on the G7 call was closer to :-0 than :-), with one G7 members predicting a 'Germany bashing session' |
| As we reported last night, the G7 call did not yield a joint statement, but officials briefed that finance ministers backed the calls for greater fiscal and financial union in eurozone as the best way to calm the crisis. | As we reported last night, the G7 call did not yield a joint statement, but officials briefed that finance ministers backed the calls for greater fiscal and financial union in eurozone as the best way to calm the crisis. |
| 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. | 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. | 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. |
| It's hard to say whether this suggests Britain is coming out of its double-dip recession, as these monthly surveys from purchasing managers have been more optimistic than the Office for National Statistics' own readings... | It's hard to say whether this suggests Britain is coming out of its double-dip recession, as these monthly surveys from purchasing managers have been more optimistic than the Office for National Statistics' own readings... |
| Duncan Weldon of the TUC was concerned to see salaries being pushed down in the construction sector: | Duncan Weldon of the TUC was concerned to see salaries being pushed down in the construction sector: |
| Decent construction PMI but PMIs out of line with official data in recent months. Falling nominal wages in sector suggest weakness. | Decent construction PMI but PMIs out of line with official data in recent months. Falling nominal wages in sector suggest weakness. |
| — Duncan Weldon (@DuncanWeldon) June 6, 2012 | — Duncan Weldon (@DuncanWeldon) June 6, 2012 |
| 9.26am: George Papaconstantinou, former Greek finance minister has warned today that Greeks face a choice between difficulty and catastrophe. | 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. | 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. | 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. | 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: | 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. | 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. | 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. | 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. | 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. | 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. | 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. | 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. | 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 |