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Eurozone crisis live: European Central Bank under pressure to act Eurozone crisis live: ECB leave rates unchanged as speculation of Spanish bailout swirls
(40 minutes later)
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.
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/>Helena writes:
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/> 		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.
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
— 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)
12.14pm: 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 account for the shift, pundits say. 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. 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:
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 crisisNo 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.
11.38am: EU officials are insisting that they have not received an aid request from Spain for its banking sector11.38am: 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" - barniereurozone 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