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| Eurozone crisis live: Spanish borrowing costs hit new high as market rally fades | Eurozone crisis live: Spanish borrowing costs hit new high as market rally fades |
| (40 minutes later) | |
| 11.18am: Open Europe, the thinktank, has also looked at why Greece doesn't just leave the euro now and move forward? | |
| There are clear economic benefits to Greece leaving the euro, but the risks involved in an imminent exit could well outweigh these benefits in the short term. We estimate that if Greece left the euro now, it could still need between €67bn and €259bn in external short-term support, potentially split between the IMF, the Eurozone and non-euro countries including the UK. These figures do not include longer-term support or contagion costs to the rest of the Eurozone. | |
| A Greek exit and the withdrawal of ECB support would almost certainly lead to the undercapitalised Greek banking sector collapsing. To avoid a massive bank run and huge losses to pensions, we estimate that banks and pensions funds between them would instantly need a €55bn injection of fresh capital, which would be difficult for Greece to afford without external support. | |
| The new Greek Central Bank would also need to create at least €128bn worth of the new currency (63% of Greek GDP) in liquidity to help keep Greek banks afloat. This could trigger high levels of inflation, though these might only be temporary. | |
| Despite a compromise being likely in the short term, as Greece approaches a balanced budget and a more stable banking sector, though still messy, an exit will look increasingly attractive – particularly if the only alternative for Athens is to permanently give up economic and political sovereignty. | |
| 11.16am: Thinktank Open Europe estimates that the EU countries have a total exposure of €552bn to the Greek economy. This comes through various sources including the two direct bailouts, central bank lending (ECB monetary policy, ECB Securities Markets Programme, Target 2 and Emergency Liquidity Assistance) and exposure of these countries' banking sectors to Greece. This has increased by a massive 67% since June 2011. | |
| 10.41am: The FTSE has nudged back into positive territory, trading up 4 points at 5482. Germany's Dax is 0.8% higher while France's CAC is up 0.3%. | 10.41am: The FTSE has nudged back into positive territory, trading up 4 points at 5482. Germany's Dax is 0.8% higher while France's CAC is up 0.3%. |
| 10.05am: It's worth noting that the other weekend election result - France has elected a socialist dominated National Assembly, giving François Hollande strong backing for his growth agenda - still needs to be digested. | 10.05am: It's worth noting that the other weekend election result - France has elected a socialist dominated National Assembly, giving François Hollande strong backing for his growth agenda - still needs to be digested. |
| 9.48am: With the Greek election out of the way, attention has turned to Spain again. The country's borrowing costs have hit a fresh peak of 7.14%, up 22 basis points on the day - the highest ever seen during the euro's lifetime. German Bunds, meanwhile, have fallen to a yield of 1.4%. | |
| A bond trader told Reuters: | A bond trader told Reuters: |
| Markets are looking to fade the relief rally, and Spain is suddenly blowing out again. It looks like it is going to be under pressure until at least Thursday, but really it is hard to see what can stop [Spanish yields] rising even then. | Markets are looking to fade the relief rally, and Spain is suddenly blowing out again. It looks like it is going to be under pressure until at least Thursday, but really it is hard to see what can stop [Spanish yields] rising even then. |
| Spain holds an auction of short-term debt tomorrow followed by a five-year bond sale on Thursday. | Spain holds an auction of short-term debt tomorrow followed by a five-year bond sale on Thursday. |
| 9.37am: Greece as victim? Here is American economist and Nobel Prize winner Paul Krugman's latest column in the New York Times. | |
| Ever since Greece hit the skids, we've heard a lot about what's wrong with everything Greek. Some of the accusations are true, some are false — but all of them are beside the point. Yes, there are big failings in Greece's economy, its politics and no doubt its society. But those failings aren't what caused the crisis that is tearing Greece apart, and threatens to spread across Europe. | Ever since Greece hit the skids, we've heard a lot about what's wrong with everything Greek. Some of the accusations are true, some are false — but all of them are beside the point. Yes, there are big failings in Greece's economy, its politics and no doubt its society. But those failings aren't what caused the crisis that is tearing Greece apart, and threatens to spread across Europe. |
| No, the origins of this disaster lie farther north, in Brussels, Frankfurt and Berlin, where officials created a deeply — perhaps fatally — flawed monetary system, then compounded the problems of that system by substituting moralizing for analysis. And the solution to the crisis, if there is one, will have to come from the same places. | No, the origins of this disaster lie farther north, in Brussels, Frankfurt and Berlin, where officials created a deeply — perhaps fatally — flawed monetary system, then compounded the problems of that system by substituting moralizing for analysis. And the solution to the crisis, if there is one, will have to come from the same places. |
| 9.33am: Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment, is sceptical about the austerity mantra: | 9.33am: Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment, is sceptical about the austerity mantra: |
| It is increasingly obvious that a policy of all out austerity is failing to reduce government debt. Moreover, global growth is slowing and it will take substantial action from central banks to turn the cycle back up again. | It is increasingly obvious that a policy of all out austerity is failing to reduce government debt. Moreover, global growth is slowing and it will take substantial action from central banks to turn the cycle back up again. |
| The Greek election outcome was good news as a coalition led by the anti-reform party Syriza could have led to a disorderly Greek exit from the euro, triggering massive and destabilising deposit flight from other peripheral euro area nations and a marked increase in financial stress. | The Greek election outcome was good news as a coalition led by the anti-reform party Syriza could have led to a disorderly Greek exit from the euro, triggering massive and destabilising deposit flight from other peripheral euro area nations and a marked increase in financial stress. |
| However, a new Greek coalition government is unlikely to be able to restore economic growth or deliver effective reform without substantial financial help from the rest of the euro area. Meanwhile, the market focus will shift back to the larger economies of Spain the Italy which are also struggling against a weakening global growth backdrop. | However, a new Greek coalition government is unlikely to be able to restore economic growth or deliver effective reform without substantial financial help from the rest of the euro area. Meanwhile, the market focus will shift back to the larger economies of Spain the Italy which are also struggling against a weakening global growth backdrop. |
| It will take substantial action from the world's largest central banks to turn the global growth cycle back up again. In the meantime, we remain cautious on stocks and commodities, preferring gilts, global property and cash in our multi asset funds. | It will take substantial action from the world's largest central banks to turn the global growth cycle back up again. In the meantime, we remain cautious on stocks and commodities, preferring gilts, global property and cash in our multi asset funds. |
| 9.24am: The relief rally didn't last long. Markets have gone into reverse: Spanish 10-year government bond yields have topped 7% again, trading at 7.139% now, up 22 basis points on the day, while the Italian equivalent is back through 6%, at 6.074%, up 14 bps. | 9.24am: The relief rally didn't last long. Markets have gone into reverse: Spanish 10-year government bond yields have topped 7% again, trading at 7.139% now, up 22 basis points on the day, while the Italian equivalent is back through 6%, at 6.074%, up 14 bps. |
| The FTSE is down 13 points, or 0.25%, at 5465. Spain's Ibex is down 0.7% and Italy's FTSE MiB has tumbled 0.9%. | The FTSE is down 13 points, or 0.25%, at 5465. Spain's Ibex is down 0.7% and Italy's FTSE MiB has tumbled 0.9%. |
| And the euro has dropped to $1.2628. | And the euro has dropped to $1.2628. |
| 8.45am: Spanish prime minister Mariano Rajoy was equally delighted with the election outcome, which he described as "good news for Greece, very good news for the European Union, for the euro and also for Spain". | 8.45am: Spanish prime minister Mariano Rajoy was equally delighted with the election outcome, which he described as "good news for Greece, very good news for the European Union, for the euro and also for Spain". |
| I am totallly convinced that this strengthens the euro. The euro project is irreversible and we must continue to make progress on it. | I am totallly convinced that this strengthens the euro. The euro project is irreversible and we must continue to make progress on it. |
| Both Spain and Italy saw their borrowing costs rise to near unsustainable levels last week amid fears about a possible Greek exit from the eurozone. Bond yields have fallen back this morning. | |
| Rajoy said he was in favour of European fiscal integration and a banking union. | Rajoy said he was in favour of European fiscal integration and a banking union. |
| It's true that some things take time but it's also true that we need to take steps in the right direction. | It's true that some things take time but it's also true that we need to take steps in the right direction. |
| 8.42am: Meanwhile, the White House in Washington said: | 8.42am: Meanwhile, the White House in Washington said: |
| We hope this election will lead quickly to the formation of a new government that can make timely progress on the economic challenges facing the Greek people. | We hope this election will lead quickly to the formation of a new government that can make timely progress on the economic challenges facing the Greek people. |
| As President Obama and other world leaders have said, we believe that it is in all our interests for Greece to remain in the euro area while respecting its commitment to reform. | As President Obama and other world leaders have said, we believe that it is in all our interests for Greece to remain in the euro area while respecting its commitment to reform. |
| 8.38am: In Germany, finance minister Wolfgang Schäuble said the government saw the Greek election result as a "decision by Greek voters to forge ahead with the implementation of far-reaching economic and fiscal reforms". Not sure that's right - it looks like voters were driven by fear of the unknown. | 8.38am: In Germany, finance minister Wolfgang Schäuble said the government saw the Greek election result as a "decision by Greek voters to forge ahead with the implementation of far-reaching economic and fiscal reforms". Not sure that's right - it looks like voters were driven by fear of the unknown. |
| Schäuble added: | Schäuble added: |
| This path will be neither short nor easy but is necessary and will give the Greek people the prospect of a better future. In order to succeed, the programme requires political stability. | This path will be neither short nor easy but is necessary and will give the Greek people the prospect of a better future. In order to succeed, the programme requires political stability. |
| The German foreign minister Guido Westerwelle said, rather ominously: | The German foreign minister Guido Westerwelle said, rather ominously: |
| We want Greece to stay in the euro; we want Greece to continue wanting to belong to Europe. But Greece will decide now on its own path; you cannot stop anyone who wants to go. | We want Greece to stay in the euro; we want Greece to continue wanting to belong to Europe. But Greece will decide now on its own path; you cannot stop anyone who wants to go. |
| What we cannot accept is the agreements that have been made being declared null and void. There can't be substantial changes to the agreements but I can imagine that we would talk about the timelines once again, given that in reality there was political standstill in Greece because of the elections, which the normal citizens shouldn't have to suffer from. | What we cannot accept is the agreements that have been made being declared null and void. There can't be substantial changes to the agreements but I can imagine that we would talk about the timelines once again, given that in reality there was political standstill in Greece because of the elections, which the normal citizens shouldn't have to suffer from. |
| 8.29am: What's the view from Rome? John Hooper reports. | 8.29am: What's the view from Rome? John Hooper reports. |
Italy's prime minister, Mario Monti, said he was delighted by the Greek vote, "which is also a great sign for Europe". Mr Monti was speaking to journalists on his arrival in Los Cabos, Mexico, where he is due to attend the G20 meeting. | Italy's prime minister, Mario Monti, said he was delighted by the Greek vote, "which is also a great sign for Europe". Mr Monti was speaking to journalists on his arrival in Los Cabos, Mexico, where he is due to attend the G20 meeting. |
| The outcome was generally greeted with huge relief in Italy, which was widely seen as next in line for euro debt contagion. Last week, its borrowing costs soared and the Milan bourse slumped as doubts spread about the efficacy of the Spanish bail-out. | The outcome was generally greeted with huge relief in Italy, which was widely seen as next in line for euro debt contagion. Last week, its borrowing costs soared and the Milan bourse slumped as doubts spread about the efficacy of the Spanish bail-out. |
| La Repubblica was not alone this morning in reminding its readers of those concerns. "The good news is that the euro is not going to sink today in the waters of the Piraeus", wrote Maurizio Ricci. "The bad news is that nothing rules out the terminal collapse of the single currency within a few weeks or months: not necessarily in the waters of the Piraeus; it could happen instead on the spacious boulevards of Madrid or Barcelona." | La Repubblica was not alone this morning in reminding its readers of those concerns. "The good news is that the euro is not going to sink today in the waters of the Piraeus", wrote Maurizio Ricci. "The bad news is that nothing rules out the terminal collapse of the single currency within a few weeks or months: not necessarily in the waters of the Piraeus; it could happen instead on the spacious boulevards of Madrid or Barcelona." |
| Mr Monti, though, was determinedly optimistic. He said the Greeks had "understood the importance of the value of the EU". During his flight to Mexico, he had taken part in a video-conference with other EU leaders. The Italian prime minister, who is known for his dry sense of humour called it a "very high-level encounter". | Mr Monti, though, was determinedly optimistic. He said the Greeks had "understood the importance of the value of the EU". During his flight to Mexico, he had taken part in a video-conference with other EU leaders. The Italian prime minister, who is known for his dry sense of humour called it a "very high-level encounter". |
| 8.22am: The group of eurozone finance ministers said last night that the troika - officials from the IMF, ECB and European Commission - would return to Athens as soon as a new Greek government is in place to discuss next steps for the bailout adjustment programme, which is already off track. Here is the statement in full. | 8.22am: The group of eurozone finance ministers said last night that the troika - officials from the IMF, ECB and European Commission - would return to Athens as soon as a new Greek government is in place to discuss next steps for the bailout adjustment programme, which is already off track. Here is the statement in full. |
| 8.17am: Here are some analysts' views on the Greek election results. | 8.17am: Here are some analysts' views on the Greek election results. |
| Analysts at Barclays Capital said: | Analysts at Barclays Capital said: |
| The results appear close to what the markets had been expecting. The fact that the centre-right New Democracy has won the most votes will be viewed as market friendly because it reduces the likelihood of a near-term Greek exit from the euro area, and will be viewed as making successful negotiations with the troika somewhat more likely. Already on Sunday night euro area officials and the IMF have expressed their willingness to look at adjusting some elements of the programme, in particular its timing. Overall, however, we expect the effect on the euro and risky currencies and assets to be muted. | The results appear close to what the markets had been expecting. The fact that the centre-right New Democracy has won the most votes will be viewed as market friendly because it reduces the likelihood of a near-term Greek exit from the euro area, and will be viewed as making successful negotiations with the troika somewhat more likely. Already on Sunday night euro area officials and the IMF have expressed their willingness to look at adjusting some elements of the programme, in particular its timing. Overall, however, we expect the effect on the euro and risky currencies and assets to be muted. |
| Michael Hewson, senior market analyst at CMC Markets UK: | Michael Hewson, senior market analyst at CMC Markets UK: |
| The challenges facing the Greek economy remain mountainous and the general feeling remains predominantly that the day of reckoning has merely been delayed. The outcome of the Greece election could prove to be one of those results that could end up being potentially toxic to the winner, given that the next government could well preside over Greece's eventual exit from the euro. | The challenges facing the Greek economy remain mountainous and the general feeling remains predominantly that the day of reckoning has merely been delayed. The outcome of the Greece election could prove to be one of those results that could end up being potentially toxic to the winner, given that the next government could well preside over Greece's eventual exit from the euro. |
| Michael Derks, chief strategist at forex broker FxPro: | Michael Derks, chief strategist at forex broker FxPro: |
| The euro is now at $1.27 for the first time in four weeks, and from a technical perspective the price action looks encouraging.Not surprisingly, both the dollar and the yen have given back some ground whilst the pound has again underperformed. Bond yields of both Italy and Spain are lower in early trading, whilst Bund yields are higher. | The euro is now at $1.27 for the first time in four weeks, and from a technical perspective the price action looks encouraging.Not surprisingly, both the dollar and the yen have given back some ground whilst the pound has again underperformed. Bond yields of both Italy and Spain are lower in early trading, whilst Bund yields are higher. |
| It remains to be seen how long the relief lasts. Greece remains on a financial precipice, with the government essentially out of money, deposits fleeing the country and tax avoidance now an epidemic. Also, there are justifiable doubts over whether Greek politicians will be able to form a properly-functioning government, one able to actually implement the troika's demands. | It remains to be seen how long the relief lasts. Greece remains on a financial precipice, with the government essentially out of money, deposits fleeing the country and tax avoidance now an epidemic. Also, there are justifiable doubts over whether Greek politicians will be able to form a properly-functioning government, one able to actually implement the troika's demands. |
| 8.08am: On bond markets, Italian ten-year yields have fallen back below 6%, trading at 5.9% this morning. The Spanish equivalent also dropped, by 4 basis points to 6.88%. | 8.08am: On bond markets, Italian ten-year yields have fallen back below 6%, trading at 5.9% this morning. The Spanish equivalent also dropped, by 4 basis points to 6.88%. |
| 8.02am: European stock markets follow in Asia's footsteps. The FTSE 100 index in London leapt more than 75 points in the first minute of trading and is now up about 70 points at 5551, a 1.3% gain. Spain's Ibex jumped 1.7%, Italy's FTSE MiB is up 1%, Germany's Dax 1.3% and France's CAC is 1.1% ahead. | 8.02am: European stock markets follow in Asia's footsteps. The FTSE 100 index in London leapt more than 75 points in the first minute of trading and is now up about 70 points at 5551, a 1.3% gain. Spain's Ibex jumped 1.7%, Italy's FTSE MiB is up 1%, Germany's Dax 1.3% and France's CAC is 1.1% ahead. |
| 7.52am: There is very little in terms of economic data scheduled for today, so the two-day G20 meeting in the resort of Los Cabos in Mexico will take centre stage. "European leaders are expected to come under increasing pressure to deal more decisively with the financial crisis as many nations outside Europe like China and the US are being negatively impacted ever more by the ongoing turmoil in financial markets," said Mark Huber at ETX Capital. | 7.52am: There is very little in terms of economic data scheduled for today, so the two-day G20 meeting in the resort of Los Cabos in Mexico will take centre stage. "European leaders are expected to come under increasing pressure to deal more decisively with the financial crisis as many nations outside Europe like China and the US are being negatively impacted ever more by the ongoing turmoil in financial markets," said Mark Huber at ETX Capital. |
| The first news is expected to come at lunchtime UK time when David Cameron lands in Mexico, having briefed journalists on the plane. Los Cabos is seven hours behind the UK. | The first news is expected to come at lunchtime UK time when David Cameron lands in Mexico, having briefed journalists on the plane. Los Cabos is seven hours behind the UK. |
| 7.44am: The euro hit a one-month high against the dollar this morning, rising to $1.2748, and Asian stock markets rallied. Japan's Nikkei closed up 1.8% while Hong Kong's Hang Seng and Singapore's Straits Times both added about 1%. | 7.44am: The euro hit a one-month high against the dollar this morning, rising to $1.2748, and Asian stock markets rallied. Japan's Nikkei closed up 1.8% while Hong Kong's Hang Seng and Singapore's Straits Times both added about 1%. |
| Taisuke Tanaka, chief FX strategist at Deutsche Securities, told Reuters: | Taisuke Tanaka, chief FX strategist at Deutsche Securities, told Reuters: |
| This election result should keep hopes alive that Greece will stay in the euro. There are massive short positions on the euro. Market players now need to consider whether the euro has more downside or upside, ahead of eurozone policymakers' meetings in coming days. I think risk curencies could recover some of their lost grounds. | This election result should keep hopes alive that Greece will stay in the euro. There are massive short positions on the euro. Market players now need to consider whether the euro has more downside or upside, ahead of eurozone policymakers' meetings in coming days. I think risk curencies could recover some of their lost grounds. |
| 7.17am: Good morning. Welcome back to our rolling coverage of the eurozone debt crisis. Greece has avoided "Drachmageddon" as voters handed the conservative, pro-bailout parties a narrow victory. The New Democracy party will try to form a new coalition. So Greece remains in the euro, at least for now. | 7.17am: Good morning. Welcome back to our rolling coverage of the eurozone debt crisis. Greece has avoided "Drachmageddon" as voters handed the conservative, pro-bailout parties a narrow victory. The New Democracy party will try to form a new coalition. So Greece remains in the euro, at least for now. |
| Surprisingly, it's also still in the Euro after its win against Russia on Saturday night, and will face Germany in the European championships quarter final on Friday. | Surprisingly, it's also still in the Euro after its win against Russia on Saturday night, and will face Germany in the European championships quarter final on Friday. |
| Gary Jenkins of Swordfish Research said: | Gary Jenkins of Swordfish Research said: |
| That will be worth watching … Today and this week it will be Spanish bond yields that will probably be the most watched asset on the capital markets. You would expect them to benefit from the general relief rally that is expected to occur today (for a while at least) but then again you would have expected them to perform reasonably well on Friday and they didn't. Whilst one should not take too much notice of any one day relative trading pattern it most have been of some concern to European officials that Spanish bonds did not join in Friday's mini rally. | That will be worth watching … Today and this week it will be Spanish bond yields that will probably be the most watched asset on the capital markets. You would expect them to benefit from the general relief rally that is expected to occur today (for a while at least) but then again you would have expected them to perform reasonably well on Friday and they didn't. Whilst one should not take too much notice of any one day relative trading pattern it most have been of some concern to European officials that Spanish bonds did not join in Friday's mini rally. |