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Eurozone crisis live: Italian borrowing costs jump at bond sale Eurozone crisis live: Italian borrowing costs jump at bond sale
(40 minutes later)
1.58pm: Greece might soon need a third bailout, German weekly Die Zeit reports, citing unnamed financial and government sources.
Discussions are under way in the EU to give the debt-laden country more time to reduce its deficit. In order to extend the deficit-reduction timetable, Greece would need tens of billions more in aid, the paper said.
Eurozone officials have told Market News International that if the new Greek government shows sincere commitment, "some adjustments could be made to the bailout programme."
The sharp deterioration in the country's growth outlook leaves room
to extend the period for the consolidation effort, one source noted. The
working scenario has been for an extension of two years, which means
Greece would have to bring its deficit down to 3% of GDP by 2016 instead
of 2014, the official said.
"It is a well known secret in Brussels that the €130bn second bailout programme won't be enough," another source said.
1.49pm: Why has the euro been so steady, now trading at $1.2536? and why are German bond yields rising when Spanish and Italian yields are flat?
"We are seeing a plethora of moves that are out of kilter with recent norms and correlations," says Simon Smith, chief economist at forex broker FxPro.
For starters, the euro has been the strongest performer during the European session, outpacing the Aussie and other (traditionally) high-beta currencies. The high around the $1.2550 area takes EUR/USD back above last week's closing levels, but only modestly so. The fact that we have also seen German yields rise further (by 8bp) when Spanish and Italian yields were little changed is also a fairly rare phenomenon over the past year, normally symptomatic of a fairly major "risk-on" move. The euro price action appears to be in part owing to positioning, with the market still vulnerable to a short-squeeze given the extent of short positions (as seen in latest CFTC data). Furthermore, there are reports in the German press that EU leaders may relax the austerity measures on Greece after the weekend election. It's certainly true that the election result is far less binary than is often made out.
The price action is also further confirmation (if needed) that the strong "risk-on, risk-off" dynamics that have characterised much of the past 3 years have altered fairly dramatically, both in FX markets and beyond. This has implications for investors but also central banks, with the impact on asset markets of further quantitative easing biased towards being less dramatic than before. This was reflected in remarks from the Bank of England deputy governor (Tucker) yesterday, who challenged the conventional thinking that QE should be limited to buying gilts. Governments and EU leaders in particular should take note, as the ability of central banks to do the heavy lifting is diminishing fast.
1.34pm: More on the US retail sales figures. Excluding cars, sales fell 0.4%, the biggest decline in two years, following a 0.3% fall in April, according to the US Commerce Department.
Theodore Little at Thomson Reuters said:
The weak numbers are consistent with the below-trend growth implied by employment, and suggest that we are well into yet another mid-year slump.
1.30pm: Retail sales in the United States disappointed in May with a 0.2% drop, against Wall Street forecasts of a rise of the same size. The dollar pared gains against the yen after the news, and US stock index futures extended declines, pointing to a lower open on Wall Street. April was revised lower to a 0.2% fall from a 0.1% rise.
12.58pm: Credit rating agency Fitch has looked at the impact of a "Grexit" on European banks. It says that a hypothetical Greek exit would have "limited direct, cross-border impact on neighbouring countries". However, the impact on Spain and Italy could be "severe".12.58pm: Credit rating agency Fitch has looked at the impact of a "Grexit" on European banks. It says that a hypothetical Greek exit would have "limited direct, cross-border impact on neighbouring countries". However, the impact on Spain and Italy could be "severe".

While Greek and Cypriot banks would be severely exposed, the direct impact on most of the other eurozone banks would be modest. Of these, banks with subsidiaries or branches in Greece would be most affected, and the impact they faced would depend on the extent to which they are funding Greek assets cross-border.
While Greek and Cypriot banks would be severely exposed, the direct impact on most of the other eurozone banks would be modest. Of these, banks with subsidiaries or branches in Greece would be most affected, and the impact they faced would depend on the extent to which they are funding Greek assets cross-border.
However, Fitch believes the indirect impact of a Greek redenomination on banks throughout the eurozone could be severe, most notably in programme countries as well as Spain and Italy. A robust response from policymakers would be required to prevent contagion, and Fitch would expect a strong public statement of commitment by the ECB and eurozone policymakers to provide support, if required. Furthermore, this statement would need to be backed up by specific policy actions. The willingness to extend a EUR100bn credit line to Spain to support its banks is a clear sign of policymakers' willingness to do what is necessary.However, Fitch believes the indirect impact of a Greek redenomination on banks throughout the eurozone could be severe, most notably in programme countries as well as Spain and Italy. A robust response from policymakers would be required to prevent contagion, and Fitch would expect a strong public statement of commitment by the ECB and eurozone policymakers to provide support, if required. Furthermore, this statement would need to be backed up by specific policy actions. The willingness to extend a EUR100bn credit line to Spain to support its banks is a clear sign of policymakers' willingness to do what is necessary.
While a Greek exit is not Fitch's base case scenario, a second Greek election on 17 June and the increasing possibility that a populist, anti-austerity party will come to power has heightened risks for some banks. Fitch's Issuer Default Ratings (IDRs) on the five Greek banks it rates are now all at 'CCC'. The banks' Viability Ratings (VRs), which strip out extraordinary support potential, are all at 'f'. Redenomination of the currency and conversion of deposit and other liabilities would be considered to be a distressed debt exchange (DDE) for Greek banks under Fitch's criteria, given that this would be a markedly devalued currency. Redenomination would also result in escalating impaired loans for these institutions, while deposit runs prior to enforced freezes and loss of ECB liquidity would hit funding.While a Greek exit is not Fitch's base case scenario, a second Greek election on 17 June and the increasing possibility that a populist, anti-austerity party will come to power has heightened risks for some banks. Fitch's Issuer Default Ratings (IDRs) on the five Greek banks it rates are now all at 'CCC'. The banks' Viability Ratings (VRs), which strip out extraordinary support potential, are all at 'f'. Redenomination of the currency and conversion of deposit and other liabilities would be considered to be a distressed debt exchange (DDE) for Greek banks under Fitch's criteria, given that this would be a markedly devalued currency. Redenomination would also result in escalating impaired loans for these institutions, while deposit runs prior to enforced freezes and loss of ECB liquidity would hit funding.
After Greek banks, Cypriot banks are most exposed to Greek redenomination risks given their direct exposure to Greek loans and to the Greek economy through their large branch networks in the country. The IDRs of the three rated banks in Cyprus are 'BB+' and on Rating Watch Negative (RWN) while VRs are 'b-'/RWN at best.After Greek banks, Cypriot banks are most exposed to Greek redenomination risks given their direct exposure to Greek loans and to the Greek economy through their large branch networks in the country. The IDRs of the three rated banks in Cyprus are 'BB+' and on Rating Watch Negative (RWN) while VRs are 'b-'/RWN at best.
Fitch believes the impact on banks' IDRs in the rest of the eurozone would depend on the effectiveness of the policy response. Banks in Portugal and Ireland are more vulnerable to contagion risks as these nations could be perceived "next in line" for a euro exit. If the EU policy response fails to control contagion risks and if bank runs and capital flight were to become a reality, banks in these countries would be under severe stress. The EUR100bn credit line extended to Spain to support its banks should help to reduce some of the contagion there.Fitch believes the impact on banks' IDRs in the rest of the eurozone would depend on the effectiveness of the policy response. Banks in Portugal and Ireland are more vulnerable to contagion risks as these nations could be perceived "next in line" for a euro exit. If the EU policy response fails to control contagion risks and if bank runs and capital flight were to become a reality, banks in these countries would be under severe stress. The EUR100bn credit line extended to Spain to support its banks should help to reduce some of the contagion there.
Banks in the stronger eurozone countries under the most rating pressure from a Greek exit would be those with the weakest funding profiles and the highest direct exposure to peripheral countries.Banks in the stronger eurozone countries under the most rating pressure from a Greek exit would be those with the weakest funding profiles and the highest direct exposure to peripheral countries.
12.42pm: Here is a lunchtime round-up.12.42pm: Here is a lunchtime round-up.
• The German finance minister urges Italy to stick to Monti reforms• The German finance minister urges Italy to stick to Monti reforms
• Spanish and Italian bond yields are flat: the Spanish ten-year is down 2 basis points at 6.736% while the Italian equivalent is at 6.176%, a 1 point fall• Spanish and Italian bond yields are flat: the Spanish ten-year is down 2 basis points at 6.736% while the Italian equivalent is at 6.176%, a 1 point fall
• Italian borrowing costs jump at auction• Italian borrowing costs jump at auction
• Eurozone strains take shine off German Bunds• Eurozone strains take shine off German Bunds
• European stock markets edge down with the notable exception of Spain's Ibex, which has climbed 1.2% to 6602: The FTSE falls 11 points, or 0.2% to 5462; Germany's Dax loses 0.7% to 6120; France's CAC drops 0.5% to 3031; Italy's FTSE MIB down 0.3% at 12936• European stock markets edge down with the notable exception of Spain's Ibex, which has climbed 1.2% to 6602: The FTSE falls 11 points, or 0.2% to 5462; Germany's Dax loses 0.7% to 6120; France's CAC drops 0.5% to 3031; Italy's FTSE MIB down 0.3% at 12936
• Eurozone industrial production falls 0.8% in April, which points to a decline in eurozone GDP between April and June• Eurozone industrial production falls 0.8% in April, which points to a decline in eurozone GDP between April and June
12.38pm: Our Athens correspondent Helena Smith writes that in Greece "anger has given way to the politics of fear".12.38pm: Our Athens correspondent Helena Smith writes that in Greece "anger has given way to the politics of fear".
Four days before one of the most important polls in modern Greek history, there are few who doubt that a theme has emerged: while the inconclusive 6 May election was all about rage and fury, the overriding sentiment this time is fear.Four days before one of the most important polls in modern Greek history, there are few who doubt that a theme has emerged: while the inconclusive 6 May election was all about rage and fury, the overriding sentiment this time is fear.
Anger at the austerity being demanded in return for financial help from the EU and the IMF has given way to fear of the unknown, fear of the future, fear that has come with the crumbling of certainties.Anger at the austerity being demanded in return for financial help from the EU and the IMF has given way to fear of the unknown, fear of the future, fear that has come with the crumbling of certainties.
For over two years, Greeks have been bombarded with the talk of crisis, with each week in the seemingly never-ending Euro-drama being "more crucial" than the next. Now, they have reached a defining point, with the vote being seen as a conclusive test of their desire to stay in the eurozone.For over two years, Greeks have been bombarded with the talk of crisis, with each week in the seemingly never-ending Euro-drama being "more crucial" than the next. Now, they have reached a defining point, with the vote being seen as a conclusive test of their desire to stay in the eurozone.
More on our Greek blog.More on our Greek blog.
12.27pm: The market turbulence has boosted corporate bond issuance - the Spanish bank bailout request last weekend resulted in €9bn of new corporate bonds being issued in just a few hours. Investors should prepare for more such "mini waves" of issuance throughout the rest of the year, says Nancy Utterback, Aviva Investors' senior credit analyst.12.27pm: The market turbulence has boosted corporate bond issuance - the Spanish bank bailout request last weekend resulted in €9bn of new corporate bonds being issued in just a few hours. Investors should prepare for more such "mini waves" of issuance throughout the rest of the year, says Nancy Utterback, Aviva Investors' senior credit analyst.
European companies issued a record €54bn of corporate bonds in the first quarter of 2012. This was largely due to the European Central Bank's introduction of the long-term-refinancing-operation which boosted market liquidity after a period of extreme volatility. As the European sovereign crisis resurfaced, however, credit markets became more volatile, resulting in April and May being more muted.European companies issued a record €54bn of corporate bonds in the first quarter of 2012. This was largely due to the European Central Bank's introduction of the long-term-refinancing-operation which boosted market liquidity after a period of extreme volatility. As the European sovereign crisis resurfaced, however, credit markets became more volatile, resulting in April and May being more muted.
In volatile times, companies try to spot 'windows of opportunity' rather than issuing debt at a regular pace. These windows normally open up when markets begin to look steadier post important macro events. We saw this happen on Monday morning following the Spanish bank bailout request. As the year marches on, companies will have to start thinking about financing options for 2013/2014 which is likely to lead to further 'mini waves' of issuance. Each of those will give investors the opportunity to build exposure to the asset class but the most important thing is to get the timing right.In volatile times, companies try to spot 'windows of opportunity' rather than issuing debt at a regular pace. These windows normally open up when markets begin to look steadier post important macro events. We saw this happen on Monday morning following the Spanish bank bailout request. As the year marches on, companies will have to start thinking about financing options for 2013/2014 which is likely to lead to further 'mini waves' of issuance. Each of those will give investors the opportunity to build exposure to the asset class but the most important thing is to get the timing right.
Utterback adds that corporate credit has the potential to be a relatively safe haven for investors looking to defensively position their portfolios but can also generate that extra income needed:Utterback adds that corporate credit has the potential to be a relatively safe haven for investors looking to defensively position their portfolios but can also generate that extra income needed:
Investors today are looking for less exposure to volatility and secure levels of income. With five year Gilts currently yielding below 2%, the additional 1% – 2% they can get from investment grade corporate bonds has generated a strong demand for the asset class. The investment case is also supported by the fact that many corporate issuers are globally diversified and have broad revenue streams. Most have ensured that following the 2008/09 downturn their balance sheets are in good shape and that they have the ability to withstand potential pressure on revenues. Their fate is very much in their own hands.Investors today are looking for less exposure to volatility and secure levels of income. With five year Gilts currently yielding below 2%, the additional 1% – 2% they can get from investment grade corporate bonds has generated a strong demand for the asset class. The investment case is also supported by the fact that many corporate issuers are globally diversified and have broad revenue streams. Most have ensured that following the 2008/09 downturn their balance sheets are in good shape and that they have the ability to withstand potential pressure on revenues. Their fate is very much in their own hands.
The sectors that look particularly favourable to us at the moment are Media, Utilities and Business Services. In fact the Media industry has been a pleasant surprise. In cyclical downturns, names in this sector can sell off but this has not been the case. Companies now have good geographical footprints and balance sheets are in better shape. We expect them to continue doing well, especially given there are a number of high profile events coming up such as the US elections and the Olympics which they can benefit from.The sectors that look particularly favourable to us at the moment are Media, Utilities and Business Services. In fact the Media industry has been a pleasant surprise. In cyclical downturns, names in this sector can sell off but this has not been the case. Companies now have good geographical footprints and balance sheets are in better shape. We expect them to continue doing well, especially given there are a number of high profile events coming up such as the US elections and the Olympics which they can benefit from.
12.12pm: Dow Jones has just tweeted this - is this electioneering?12.12pm: Dow Jones has just tweeted this - is this electioneering?
*Greek Conservatives: EU Has Accepted Modifications To Bailout Deal*Greek Conservatives: EU Has Accepted Modifications To Bailout Deal
— DJ FX Trader (@djfxtrader) June 13, 2012— DJ FX Trader (@djfxtrader) June 13, 2012
11.09am: Markets want certainty from the Greek elections, writes my colleague Phillip Inman on our Greek blog. More here.11.09am: Markets want certainty from the Greek elections, writes my colleague Phillip Inman on our Greek blog. More here.
10.52am: Here is some reaction to the German bond auction. Annalisa Piazza, market economist at Newedge Strategy, told Reuters: "As expected, demand was decent but not exceptionally strong."10.52am: Here is some reaction to the German bond auction. Annalisa Piazza, market economist at Newedge Strategy, told Reuters: "As expected, demand was decent but not exceptionally strong."
Huw Worthington, rate strategist at Barclays Capital, said:Huw Worthington, rate strategist at Barclays Capital, said:
It's pretty reasonable. We've seen a big concession in German 10-year yields over the last few days. We don't traditionally see large concessions in German bonds. The bond is one of the cheapest in relative value terms on the German curve and that helped as well.It's pretty reasonable. We've seen a big concession in German 10-year yields over the last few days. We don't traditionally see large concessions in German bonds. The bond is one of the cheapest in relative value terms on the German curve and that helped as well.
10.39am: Germany has had a bond auction as well. It has sold €4.042bn of ten-year Bunds, with an average yield of 1.52%, up from 1.47% at the last auction.10.39am: Germany has had a bond auction as well. It has sold €4.042bn of ten-year Bunds, with an average yield of 1.52%, up from 1.47% at the last auction.
10.32am: More grim news from the eurozone, with industrial production falling 0.8% in April, according to official data. Production was 2.3% lower than a year ago, pointing to the worst downturn since December 2009.

Chris Williamson, chief economist at Markit, said:		10.32am: More grim news from the eurozone, with industrial production falling 0.8% in April, according to official data. Production was 2.3% lower than a year ago, pointing to the worst downturn since December 2009.

Chris Williamson, chief economist at Markit, said:
The drop was less than expected according to a Reuters poll of analysts, and March's decline was revised to show a shallower downturn, but the April fall can hardly be seen as anything other than bad news for the euro area and takes the level of production down to its lowest since September 2010.The drop was less than expected according to a Reuters poll of analysts, and March's decline was revised to show a shallower downturn, but the April fall can hardly be seen as anything other than bad news for the euro area and takes the level of production down to its lowest since September 2010.
The fall would also have been even steeper had it not been for a rebound in energy production, leaving manufacturing looking particularly weak. Of particular concern was a 2.6% drop in the production of capital goods, such as plant and machinery, which indicates weak investment by business in the face of the region's ongoing crisis. Production of consumer goods also fell sharply, highlighting the current weakness of consumer demand across the region. Output of intermediate goods - inputs and components supplied to other manufacturers - also fell, suggesting companies are running down their stock levels amid widespread economic uncertainty.The fall would also have been even steeper had it not been for a rebound in energy production, leaving manufacturing looking particularly weak. Of particular concern was a 2.6% drop in the production of capital goods, such as plant and machinery, which indicates weak investment by business in the face of the region's ongoing crisis. Production of consumer goods also fell sharply, highlighting the current weakness of consumer demand across the region. Output of intermediate goods - inputs and components supplied to other manufacturers - also fell, suggesting companies are running down their stock levels amid widespread economic uncertainty.
PMI survey data suggest the downturn gathered further momentum in May, with manufacturing output falling at the fastest rate since June 2009. Service sector activity is also falling at an increasing rate which, combined with the manufacturing downturn, suggests that the Eurozone economy could contract by around 0.5% in the second quarter.PMI survey data suggest the downturn gathered further momentum in May, with manufacturing output falling at the fastest rate since June 2009. Service sector activity is also falling at an increasing rate which, combined with the manufacturing downturn, suggests that the Eurozone economy could contract by around 0.5% in the second quarter.
The weakness of the official data and the PMI point to the need for further action to stimulate the ailing economy and prevent a further deepening of the downturn. The PMI has fallen even deeper into territory which is historically consistent with rate cuts by the ECB, suggesting a trimming of the policy rate below 1% alongside further LTROs would be appropriate according to the macroeconomic data.The weakness of the official data and the PMI point to the need for further action to stimulate the ailing economy and prevent a further deepening of the downturn. The PMI has fallen even deeper into territory which is historically consistent with rate cuts by the ECB, suggesting a trimming of the policy rate below 1% alongside further LTROs would be appropriate according to the macroeconomic data.
10.28am: Nicholas Spiro, of Spiro Sovereign Strategy, has been quick to send us his thoughts on the Italian bill auction.10.28am: Nicholas Spiro, of Spiro Sovereign Strategy, has been quick to send us his thoughts on the Italian bill auction.
1. Although a warm-up for tomorrow's bond auction, today's sale underscores the externally driven deterioration in Italy's perceived creditworthiness. The concession is staggering, with Italy now paying almost 4% to issue 1-year paper. Contagion is back with a vengeance and Italy is bearing the brunt of the fallout from Spain's request for external assistance.1. Although a warm-up for tomorrow's bond auction, today's sale underscores the externally driven deterioration in Italy's perceived creditworthiness. The concession is staggering, with Italy now paying almost 4% to issue 1-year paper. Contagion is back with a vengeance and Italy is bearing the brunt of the fallout from Spain's request for external assistance.
2. The shorter end of the curve in Spain and Italy has been hammered over the past month or so, which is a sign that panic has set in. The greatest risk to Italy right now is the lack of differentiation in the markets. Italy's country-specific strengths are being suppressed or ignored. The pressure on core eurozone bonds indicates that this is not just about Spain. Rather, this is eurozone "break-up contagion" that is taking hold.2. The shorter end of the curve in Spain and Italy has been hammered over the past month or so, which is a sign that panic has set in. The greatest risk to Italy right now is the lack of differentiation in the markets. Italy's country-specific strengths are being suppressed or ignored. The pressure on core eurozone bonds indicates that this is not just about Spain. Rather, this is eurozone "break-up contagion" that is taking hold.
10.14am: Italy's one-year borrowing costs shot up at an auction just now, hitting a six-month high of 3.972%. A month ago Italy paid just 2.34% when it sold bills of the same maturity.10.14am: Italy's one-year borrowing costs shot up at an auction just now, hitting a six-month high of 3.972%. A month ago Italy paid just 2.34% when it sold bills of the same maturity.
Its Treasury sold the planned €6.5bn in one-year bills, with bids coming in at 1.7 times that amount, only slightly down from a month ago. Tomorrow it faces a tougher task when three-year bonds and two longer-dated issues are up for grabs, for a total of up to €4.5bn.Its Treasury sold the planned €6.5bn in one-year bills, with bids coming in at 1.7 times that amount, only slightly down from a month ago. Tomorrow it faces a tougher task when three-year bonds and two longer-dated issues are up for grabs, for a total of up to €4.5bn.
10.07am: Our Rome correspondent John Hooper has just sent us this:10.07am: Our Rome correspondent John Hooper has just sent us this:
As you may have seen earlier, the Liveblog was played what seemed like a nasty trick by an online translator so that "the [Mario] Monti path", warmly recommended by Germany's finance minister, Wolfgang Schäuble as the solution for Italy's difficulties, came out as "the path of the mountains".As you may have seen earlier, the Liveblog was played what seemed like a nasty trick by an online translator so that "the [Mario] Monti path", warmly recommended by Germany's finance minister, Wolfgang Schäuble as the solution for Italy's difficulties, came out as "the path of the mountains".
All I can say is that that web translation software has pretty good political instincts. Because the Monti path to salvation is looking very much like a hike up the Brenner Pass, and that is among the main concerns of investors. Italy's prime minister has so far made a good fist of imposing fiscal austerity. But he is having a lot more difficulty with phase two, which is to stimulate growth.All I can say is that that web translation software has pretty good political instincts. Because the Monti path to salvation is looking very much like a hike up the Brenner Pass, and that is among the main concerns of investors. Italy's prime minister has so far made a good fist of imposing fiscal austerity. But he is having a lot more difficulty with phase two, which is to stimulate growth.
No less than four different measures are stuck at various stages on their way to the statute book. They include a bill to introduce greater flexibility and fairness into the labour market (which is horrendously complicated, and problematic for the left); another to tackle corruption (which is being held up by objections from the right who seem to think it could have unpleasant implications for one Silvio Berlusoni) and a wide-ranging "growth package" that hasn't so far made it past the cabinet.

The last of these is perhaps the one that has most to tell us about the difficulties of enforcing austerity while promoting growth. The objections come, not from bickering party politicians, but the government's own bean-counters who have forcefully pointed out that, if Italy is to stick to its aim of eliminating the budget deficit by the end of next year, then it cannot afford the stimulus measures proposed. Since we're talking about online definitions, you might like to have a look at the word Ouroboros.		No less than four different measures are stuck at various stages on their way to the statute book. They include a bill to introduce greater flexibility and fairness into the labour market (which is horrendously complicated, and problematic for the left); another to tackle corruption (which is being held up by objections from the right who seem to think it could have unpleasant implications for one Silvio Berlusoni) and a wide-ranging "growth package" that hasn't so far made it past the cabinet.

The last of these is perhaps the one that has most to tell us about the difficulties of enforcing austerity while promoting growth. The objections come, not from bickering party politicians, but the government's own bean-counters who have forcefully pointed out that, if Italy is to stick to its aim of eliminating the budget deficit by the end of next year, then it cannot afford the stimulus measures proposed. Since we're talking about online definitions, you might like to have a look at the word Ouroboros.
10.01am: As we reported earlier, Greeks are withdrawing as much cash as they can ahead of this Sunday's elections. One banker told Bloomberg more than €700m may have been withdrawn yesterday.10.01am: As we reported earlier, Greeks are withdrawing as much cash as they can ahead of this Sunday's elections. One banker told Bloomberg more than €700m may have been withdrawn yesterday.
Outflows "could accelerate the sequence of events leading to the emergence of a new currency," said Thomas Costerg, an economist at Standard Chartered Bank in London. Still, "Greek banks can tap the abundant central bank funding, which can offset the pressure coming from deposit flight."Outflows "could accelerate the sequence of events leading to the emergence of a new currency," said Thomas Costerg, an economist at Standard Chartered Bank in London. Still, "Greek banks can tap the abundant central bank funding, which can offset the pressure coming from deposit flight."
More in this Bloomberg story.More in this Bloomberg story.
9.51am: A Reuters flash says:9.51am: A Reuters flash says:
Draft conclusions for EU leaders 28-29 June summit say there is need for much stronger banking and fiscal integration, underpinned by enhanced eurozone governanceDraft conclusions for EU leaders 28-29 June summit say there is need for much stronger banking and fiscal integration, underpinned by enhanced eurozone governance
9.49am: Spanish default insurance costs have also eased from record highs seen yesterday. Five-year credit default swaps on Spanish government debt fell 10 basis points to 593 bps, according to data group Markit. This means it costs $593,000 a year to buy $10m of protection against a Spanish default.9.49am: Spanish default insurance costs have also eased from record highs seen yesterday. Five-year credit default swaps on Spanish government debt fell 10 basis points to 593 bps, according to data group Markit. This means it costs $593,000 a year to buy $10m of protection against a Spanish default.
Markit analyst Gavan Nolan said:Markit analyst Gavan Nolan said:
It's just a day of consolidation after the severe widening we've seen over the past few days. The tightening we're seeing is relatively modest... Overall the mood is one of caution ahead of the Greek elections on Sunday.It's just a day of consolidation after the severe widening we've seen over the past few days. The tightening we're seeing is relatively modest... Overall the mood is one of caution ahead of the Greek elections on Sunday.
9.41am: Right, time for a quick look at the markets. The euro is steady this morning at around $1.2519, well above its near two-year low hit on 1 June of $1.2288 but below its three-week peak reached on Monday ot $1.2672.9.41am: Right, time for a quick look at the markets. The euro is steady this morning at around $1.2519, well above its near two-year low hit on 1 June of $1.2288 but below its three-week peak reached on Monday ot $1.2672.
German Bund yields are rising in a sign that investors are getting nervous. The ten-year has hit 1.504%. Italian and Spanish yields are down a tad today, with the Italian ten-year falling to 6.123% and the Spanish equivalent touching 6.699%.German Bund yields are rising in a sign that investors are getting nervous. The ten-year has hit 1.504%. Italian and Spanish yields are down a tad today, with the Italian ten-year falling to 6.123% and the Spanish equivalent touching 6.699%.
Turning to stock markets, Spain's Ibex is 0.7% ahead while shares in Italy have turned negative, trading down nearly 0.8%.Turning to stock markets, Spain's Ibex is 0.7% ahead while shares in Italy have turned negative, trading down nearly 0.8%.
The FTSE is trading just 2 points higher at 5475 while Germany's Dax is up 0.2% and France's CAC has just entered negative territory.The FTSE is trading just 2 points higher at 5475 while Germany's Dax is up 0.2% and France's CAC has just entered negative territory.
9.30am: Back here in Britain, banks are hoarding large amounts of cash and capital because of market pressures rather than regulatory requirements, the outgoing head of the Financial Services Authority said today.9.30am: Back here in Britain, banks are hoarding large amounts of cash and capital because of market pressures rather than regulatory requirements, the outgoing head of the Financial Services Authority said today.
Hector Sants, who stands down this month as FSA chief executive, told the BBC that lenders are worried that markets would perceive them as not being safe if they did not hold so much cash.Hector Sants, who stands down this month as FSA chief executive, told the BBC that lenders are worried that markets would perceive them as not being safe if they did not hold so much cash.
What is determining the amount of cash banks hold is the market climate and not the regulator.What is determining the amount of cash banks hold is the market climate and not the regulator.
Banks, on the other hand, have complained that they can't lend as much to small businesses as the government would like while building up capital and liquidity buffers.Banks, on the other hand, have complained that they can't lend as much to small businesses as the government would like while building up capital and liquidity buffers.
Read more on Sants' comments in this story by the Guardian's banking correspondent Jill Treanor here.Read more on Sants' comments in this story by the Guardian's banking correspondent Jill Treanor here.
9.21am: Italian prime minister Mario Monti has met the leaders of the parties backing him in parliament this morning, trying to drum up support for his reforms. He called on the EU to come up with a credible plan to stimulate growth, including greater public investments and eventually euro bonds.9.21am: Italian prime minister Mario Monti has met the leaders of the parties backing him in parliament this morning, trying to drum up support for his reforms. He called on the EU to come up with a credible plan to stimulate growth, including greater public investments and eventually euro bonds.
The 28 June summit must put a "credible emphasis on growth," Monti told the lower house of parliament this morning. The interest rate on Italian 10-year bonds touched 6.3% ysterday, the highest level since January, and the spread with benchmark German Bunds widened to 490 basis points. Today Italian yields have eased to 6.112%.The 28 June summit must put a "credible emphasis on growth," Monti told the lower house of parliament this morning. The interest rate on Italian 10-year bonds touched 6.3% ysterday, the highest level since January, and the spread with benchmark German Bunds widened to 490 basis points. Today Italian yields have eased to 6.112%.
"If there are better prospects for growth, then spreads will narrow" and Italy will be "protected from contagion," Monti said. He added the country was "fully" on the path to meeting its budget goals."If there are better prospects for growth, then spreads will narrow" and Italy will be "protected from contagion," Monti said. He added the country was "fully" on the path to meeting its budget goals.
9.07am: Turning to Greece, Schäuble told La Stampa that it was not inevitable that Greece would leave the euro after this weekend's elections.9.07am: Turning to Greece, Schäuble told La Stampa that it was not inevitable that Greece would leave the euro after this weekend's elections.
Greece must carry out significant structural adjustments to sort out its lack of competitveness and its weak public finances. There is no other way. If Greece were to leave the euro, this would not change its need to carry out reforms.Greece must carry out significant structural adjustments to sort out its lack of competitveness and its weak public finances. There is no other way. If Greece were to leave the euro, this would not change its need to carry out reforms.
George Osborne suggested yesterday that Greece may have to exit the eurozone so Germany can convince voters to pour more money into the troubled currency.George Osborne suggested yesterday that Greece may have to exit the eurozone so Germany can convince voters to pour more money into the troubled currency.
9.03am: Spain's Inditex, the world's largest clothes retailer, has provided some much needed cheer this morning. The company, which owns Zara, Massimo Dutti and a clutch of other brands, beat forecasts with a 30% rise in net profit to €432m (£347m) and sales of €3.4bn. Read more here.9.03am: Spain's Inditex, the world's largest clothes retailer, has provided some much needed cheer this morning. The company, which owns Zara, Massimo Dutti and a clutch of other brands, beat forecasts with a 30% rise in net profit to €432m (£347m) and sales of €3.4bn. Read more here.
8.55am: Oops. Huge apologies for mistranslating German finance minister Wolfgang Schäuble's comments earlier - I blame Google translate which turned "Monti's path" into "mountain path". He actually said this:8.55am: Oops. Huge apologies for mistranslating German finance minister Wolfgang Schäuble's comments earlier - I blame Google translate which turned "Monti's path" into "mountain path". He actually said this:
If Italy continues along Monti's path, there will be no risks.If Italy continues along Monti's path, there will be no risks.
Spain too is on the right path. It does not need an aid programme. It has a specific problem with its banking sector and I am sure it will solve it.Spain too is on the right path. It does not need an aid programme. It has a specific problem with its banking sector and I am sure it will solve it.
He told Italians, in no uncertain terms, that they must stick to Monti's reforms and austerity measures, but also acknowledged that huge progress had been made under his government of technocrats.He told Italians, in no uncertain terms, that they must stick to Monti's reforms and austerity measures, but also acknowledged that huge progress had been made under his government of technocrats.
This is acknowledged everywhere in Europe and by the markets. I can only hope that political forces in the Italian parliament and public opinion continue to decisively back him, because the road towards a return to sustainable growth through structural reforms, improved competitiveness and a lower deficit is the right one.This is acknowledged everywhere in Europe and by the markets. I can only hope that political forces in the Italian parliament and public opinion continue to decisively back him, because the road towards a return to sustainable growth through structural reforms, improved competitiveness and a lower deficit is the right one.
8.47am: Spanish and Italian bond yields have eased a tad today. Spanish ten-year yields have edged down 2 basis points to 6.714% while Italy's are at 6.088%, a 7 point fall. And interest rates on German Bunds are up slightly, by 7 points to 1.5%.8.47am: Spanish and Italian bond yields have eased a tad today. Spanish ten-year yields have edged down 2 basis points to 6.714% while Italy's are at 6.088%, a 7 point fall. And interest rates on German Bunds are up slightly, by 7 points to 1.5%.
8.37am: Echoing Schäuble's comments that Italy is not in danger, the chief economist of the Paris-based Organisation for Economic Cooperation and Development has also warned against a panic.8.37am: Echoing Schäuble's comments that Italy is not in danger, the chief economist of the Paris-based Organisation for Economic Cooperation and Development has also warned against a panic.
Pier Carlo Padoan said in an interview with Italian daily Il Messaggero:Pier Carlo Padoan said in an interview with Italian daily Il Messaggero:
There are no changes to the country's economic fundamentals that can justify an attack on Italy. Among OECD countries, Italy is one of the closest to a stabilisation of its debt. If there wasn't the contagion factor, steps taken so far towards recovery would be the right ones.There are no changes to the country's economic fundamentals that can justify an attack on Italy. Among OECD countries, Italy is one of the closest to a stabilisation of its debt. If there wasn't the contagion factor, steps taken so far towards recovery would be the right ones.
However, he admitted that if government borrowing costs remain high for long, Italy would face severe consequences. He also urged bolder steps on growth and criticised European governments for often intervening too late and with insufficient measures. Italian ten-year bond yields are above the key 6% level again, albeit falling 7 basis points this morning to 6.089%. Padoan said:However, he admitted that if government borrowing costs remain high for long, Italy would face severe consequences. He also urged bolder steps on growth and criticised European governments for often intervening too late and with insufficient measures. Italian ten-year bond yields are above the key 6% level again, albeit falling 7 basis points this morning to 6.089%. Padoan said:
The current situation reflects the fact that it is not clear to markets what political leadres and policymakers want to do. It is therefor urgent to break this vicious circle.The current situation reflects the fact that it is not clear to markets what political leadres and policymakers want to do. It is therefor urgent to break this vicious circle.
8.31am: Italy is not in danger, Germany's finance minister Wolfgang Schäuble has declared in an interview with Italian newspaper La Stampa. He says that Italy won't be the next "contaminated" country. "For Italy, no danger if it follows the path of the Mountains," the headline reads. The question is, is he saying that because Germany doesn't want to bail out Italy as well?8.31am: Italy is not in danger, Germany's finance minister Wolfgang Schäuble has declared in an interview with Italian newspaper La Stampa. He says that Italy won't be the next "contaminated" country. "For Italy, no danger if it follows the path of the Mountains," the headline reads. The question is, is he saying that because Germany doesn't want to bail out Italy as well?
Calling on Italian readers to provide a translation of the rest...Calling on Italian readers to provide a translation of the rest...
8.11am: While the pressure on Spain and Italy is rising, things look a bit more relaxed in Cyprus.8.11am: While the pressure on Spain and Italy is rising, things look a bit more relaxed in Cyprus.
The cash-strapped island is now eyeing a bilateral loan rather than an EU bailout as indicated on Monday to recapitalise its second largest bank although both options remain open, according to reports.The cash-strapped island is now eyeing a bilateral loan rather than an EU bailout as indicated on Monday to recapitalise its second largest bank although both options remain open, according to reports.
The eurozone minnow, shut out of capital markets for more than a year, must find the equivalent of 10% of its GDP by the end of the month to strengthen Cyprus Popular Bank if no private investor comes forward.The eurozone minnow, shut out of capital markets for more than a year, must find the equivalent of 10% of its GDP by the end of the month to strengthen Cyprus Popular Bank if no private investor comes forward.
Russia is back in the frame as a potential lender, the island's newspapers reported. Cyprus, which represents 0.2% of the eurozone's economy, already received a bilateral €2.5bn euro loan from Russia, a close business partner, last year. Media reported that Cyprus has sounded out Russia on a new loan, but China has also been tipped as a possible lender.Russia is back in the frame as a potential lender, the island's newspapers reported. Cyprus, which represents 0.2% of the eurozone's economy, already received a bilateral €2.5bn euro loan from Russia, a close business partner, last year. Media reported that Cyprus has sounded out Russia on a new loan, but China has also been tipped as a possible lender.
Efforts are underway to borrow from a third country with "more favourable terms", Haravghi, the mouthpiece of Cyprus's ruling AKEL Communist party, reported on its frontpage.Efforts are underway to borrow from a third country with "more favourable terms", Haravghi, the mouthpiece of Cyprus's ruling AKEL Communist party, reported on its frontpage.
Indeed, assked whether the prospect of bilateral lending was distant, finance minister Vassos Shiarly told state TV in an interview on Tuesday night: "I would say not." He also reiterated earlier comments that the island would not "wait until the last day" to take action to prop up the bank, either through bilateral lending or by resorting to the European Financial Support Facility.Indeed, assked whether the prospect of bilateral lending was distant, finance minister Vassos Shiarly told state TV in an interview on Tuesday night: "I would say not." He also reiterated earlier comments that the island would not "wait until the last day" to take action to prop up the bank, either through bilateral lending or by resorting to the European Financial Support Facility.
Popular and the island's other main bank, Bank of Cyprus, were hit heavily by writedowns on Greek debt. Bank of Cyprus has almost completed its recapitalisation privately.Popular and the island's other main bank, Bank of Cyprus, were hit heavily by writedowns on Greek debt. Bank of Cyprus has almost completed its recapitalisation privately.
Moody's yesterday cut the credit rating of Bank of Cyprus and put Popular on review for a downgrade, citing the increased risks of a possible Greek exit from the eurozone.Moody's yesterday cut the credit rating of Bank of Cyprus and put Popular on review for a downgrade, citing the increased risks of a possible Greek exit from the eurozone.
8.06am: There has been a rise in ECB lending, reflecting Greek and Spanish bank runs. Eurosystem gross lending to banks in euros rose by a further €8.5bn last week, necessitating increased borrowing from the ECB and national central banks. Lending has increased by €52.8bn over the last five weeks.8.06am: There has been a rise in ECB lending, reflecting Greek and Spanish bank runs. Eurosystem gross lending to banks in euros rose by a further €8.5bn last week, necessitating increased borrowing from the ECB and national central banks. Lending has increased by €52.8bn over the last five weeks.
Simon Ward, chief economist at Henderson Global Investors, has crunched the numbers.Simon Ward, chief economist at Henderson Global Investors, has crunched the numbers.

The gross figure comprises "lending related to monetary policy operations" and "other claims", under which the Greek and Irish "emergency liquidity assistance" (ELA) operations are recorded. The latter component fell by €61bn last week as a recapitalisation of Greek banks allowed them to switch from ELA into the weekly refinancing operation – lending under this operation surged by €68.2bn.
The gross figure comprises "lending related to monetary policy operations" and "other claims", under which the Greek and Irish "emergency liquidity assistance" (ELA) operations are recorded. The latter component fell by €61bn last week as a recapitalisation of Greek banks allowed them to switch from ELA into the weekly refinancing operation – lending under this operation surged by €68.2bn.
"Lending related to monetary policy operations" will rise further this week since €150.7bn has been drawn down in the weekly and one-month refinancing operations settling tomorrow versus a maturing total of €132.4bn."Lending related to monetary policy operations" will rise further this week since €150.7bn has been drawn down in the weekly and one-month refinancing operations settling tomorrow versus a maturing total of €132.4bn.
Greece and Spain probably account for the bulk of the €52.8bn lending rise over the past five weeks. Calendar May figures show an increase in Banco de Espana lending to banks of €26.3bn. Banca d'Italia lending, by contrast, was little changed – up by only €0.6bn. The gap between the €52.8bn system-wide rise over the past five weeks and the €26.3bn Spanish increase in May suggests that Greek banks have suffered an outflow of up to €26bn, equivalent to 6% of their total assets at the end of April and 15% of their domestic deposit base.Greece and Spain probably account for the bulk of the €52.8bn lending rise over the past five weeks. Calendar May figures show an increase in Banco de Espana lending to banks of €26.3bn. Banca d'Italia lending, by contrast, was little changed – up by only €0.6bn. The gap between the €52.8bn system-wide rise over the past five weeks and the €26.3bn Spanish increase in May suggests that Greek banks have suffered an outflow of up to €26bn, equivalent to 6% of their total assets at the end of April and 15% of their domestic deposit base.
The increase in Eurosystem lending has been "financed" by the Bundesbank.The increase in Eurosystem lending has been "financed" by the Bundesbank.
8.02am: European stock markets have edged higher in the first few minutes of trading. Germany's Dax, France's CAC and Italy's FTSE MiB are all up 0.3% while Spain's Ibex is 0.1% higher. The FTSE 100 index in London has gained 0.2%, about 10 points to 5483.8.02am: European stock markets have edged higher in the first few minutes of trading. Germany's Dax, France's CAC and Italy's FTSE MiB are all up 0.3% while Spain's Ibex is 0.1% higher. The FTSE 100 index in London has gained 0.2%, about 10 points to 5483.
7.59am: German consumer prices fell 0.2% in May, taking annual inflation to 1.9% - the lowest rate since December 2010 and compared with 2.1% in April. The figures are in line with analysts' expectations.7.59am: German consumer prices fell 0.2% in May, taking annual inflation to 1.9% - the lowest rate since December 2010 and compared with 2.1% in April. The figures are in line with analysts' expectations.
7.49am: Here is today's agenda:7.49am: Here is today's agenda:
7am German inflation for May
8.30am Italian prime minister Mario Monti speaks before parliament on Europe
10am Italian one-year bill auction
10am April Eurozone industrial production
1.30pm US retail sales for May
Angela Merkel to meet opposition leaders to discuss ESM ratification, fiscal compact		7am German inflation for May
8.30am Italian prime minister Mario Monti speaks before parliament on Europe
10am Italian one-year bill auction
10am April Eurozone industrial production
1.30pm US retail sales for May
Angela Merkel to meet opposition leaders to discuss ESM ratification, fiscal compact
All times London time (BST)All times London time (BST)
7.30am: Good morning and welcome back to our live coverage of the eurozone crisis and world economy. Well the relief over the Spanish banking bailout was certainly short-lived. Interest rates on Spanish 10-year government bonds began rising on Monday afternoon again and hit 6.8% yesterday, a rate not seen since the pre-euro days of the 1990s and closer to the key 7% level that proved unsustainable for Greece, Ireland and Portugal.7.30am: Good morning and welcome back to our live coverage of the eurozone crisis and world economy. Well the relief over the Spanish banking bailout was certainly short-lived. Interest rates on Spanish 10-year government bonds began rising on Monday afternoon again and hit 6.8% yesterday, a rate not seen since the pre-euro days of the 1990s and closer to the key 7% level that proved unsustainable for Greece, Ireland and Portugal.
Italian bond yields also moved higher, with pressure building on the eurozone's third-largest economy ahead of two bond auctions. Italy is due to sell one-year bills today and three-year bonds tomorrow. Austria's finance minister piled on pressure yesterday by suggesting Italy could need a bailout because of its high borrowing costs.Italian bond yields also moved higher, with pressure building on the eurozone's third-largest economy ahead of two bond auctions. Italy is due to sell one-year bills today and three-year bonds tomorrow. Austria's finance minister piled on pressure yesterday by suggesting Italy could need a bailout because of its high borrowing costs.
Stock markets seesawed yesterday although stocks staged a small rally late in the day amid hopes that central banks could spring into action.Stock markets seesawed yesterday although stocks staged a small rally late in the day amid hopes that central banks could spring into action.
Charles Evans, a member of the US Federal Reserve's rate-setting committee and president of the Chicago Fed, suggested that more easing could well be required to help jobs growth, ahead of next week's Fed meeting.Charles Evans, a member of the US Federal Reserve's rate-setting committee and president of the Chicago Fed, suggested that more easing could well be required to help jobs growth, ahead of next week's Fed meeting.
Meanwhile European Central Bank policymaker Josef Makuch, who heads the central bank of Slovakia, said "the ECB will do what is needed" - suggesting interest rates could fall to zero, something that president Mario Draghi hinted at last week. However this was tempered by his comments that more LTROs weren't on the table.Meanwhile European Central Bank policymaker Josef Makuch, who heads the central bank of Slovakia, said "the ECB will do what is needed" - suggesting interest rates could fall to zero, something that president Mario Draghi hinted at last week. However this was tempered by his comments that more LTROs weren't on the table.
In Greece, daily cash withdrawals have increased from around €100m to €500m a day, as fears grow that this weekend's election result could be a precursor to the beleaguered country leaving the single currency.In Greece, daily cash withdrawals have increased from around €100m to €500m a day, as fears grow that this weekend's election result could be a precursor to the beleaguered country leaving the single currency.
Today, German chancellor Angela Merkel is meeting opposition leaders to try to agree when the ratification of the new bailout mechanism, the ESM, and the fiscal compact can take place - ahead of the EU summit on 28/29 June.Today, German chancellor Angela Merkel is meeting opposition leaders to try to agree when the ratification of the new bailout mechanism, the ESM, and the fiscal compact can take place - ahead of the EU summit on 28/29 June.