Eurozone Crisis

[James1:12]

IMF: eurozone at centre of coming storm

http://euobserver.com/19/115953

BRUSSELS - International Monetary Fund chief Christine Lagarde on Thursday (19 April) warned of "dark clouds" hanging over the global recovery, with the eurozone at the heart of the problem.

"We are seeing light recovery, blowing on the spring wind. But we are also seeing very dark clouds on the horizon," Lagarde said in a press conference in Washington.

"The eurozone is the epicentre of potential risk," she warned.

Brussels wants more money from British households - £666 per year to be precise.

http://www.telegraph.co.uk/finance/debt ... -Live.html

09.18 We mentioned earlier on (07.23) that the EC is proposing a new budget for 2013 that increases the UK's contribution to Brussels by £900m. That works out as an annual total of £666 for each household in the UK.

George Soros has also been wading in:

http://www.telegraph.co.uk/finance/debt ... -2012.html

11.23 George Soros isn't beating around the bush when it comes to the euro; he's warned it "threatens to destroy the European Union" and says that if he was still an active investor he'd bet against it. The comments come in an interview published yesterday afternoon in Le Monde:
The introduction of the euro has led to divergence instead of bringing about convergence. The most fragile countries of the eurozone have discovered that they are in a Third World situation, as if they were indebted in a foreign currency, with a crucial effect that there is a real risk of default. Trying to make them respect rules that don’t work just makes matters worse. Sadly, the authorities don’t understand this.
Mario Draghi has launched extraordinary measures with his €1 trillion injection of liquidity through three-year loans. But the effect of this operation has been broken by the counter-attack of the Bundesbank. Watching the growth of the ECB’s balance sheet, the Bundesbank has realised that it risks heavy loses if the euro blows up and is therefore opposed to the (LTRO) policy. Let us hope that this does not become a self-fulfilling prophesy.

11.55 Ambrose Evans-Pritchard has written a blog post on George Soros on his no-holds-barred attack on the euro in Le Monde:
Mr Soros has some expertise in this field. His cue for launching a speculative attack – with others – on Sterling and the Lira in September 1992 came after Bundesbank chief Helmut Schlesinger told Handelsblatt that the two currencies were overvalued within the ERM peg. There would have to be a realignment.
It was a clear signal that the Bundesbank did not intend to intervene in the markets to defend the ERM pegs – as it later did for France. Mr Soros already had a $1.5bn short position on sterling. He upped the ante massively the next morning. "Go for the jugular," he told his partner Stanley Druckenmiller.

And the big, troubled nation Spain slipped further :

14.48 This morning's Spanish bond auction was hardly a roaring success, but at least it saw average bond yields of 5.74pc - under the 6pc highs we've seen recently. Unfortunately, yields have been edging upwards ever since, just as the Spanish stock market has been sliding downwards. Stephen Pope, managing partner at Spotlight Ideas, has this to say:
It did not take long for the initial applause for the Spanish auction to turn into a haunting slow handclap. As we swing past 3pm in Spain, the 10 year BONO has seen the yield to maturity screech higher from a daily low of 5.781pc to 5.915pc, +9.3bps on the day. Suddenly 6pc is looming large once again.
Rajoy has done as much as possible on the austerity front but in truth his supply side measures are less than popular in a nation saddled with crippling unemployment and their effect will not be realised until Q4 2012 at the earliest. The honest truth is ... Spain will fail to make 5.3pc as a deficit to GDP target this year. It will require aid and even if it is dressed up as a bank solvency plan, it will be another nation taking the bailout route. This is why the markets have turned ugly in Madrid.

[James1:12]

09.24 Markets continue to slide lower on fears over France and the Netherlands, as well as the weak economic data out this morning from Germany and France.

The FTSE 100 is now down by 1.43pc, the CAC has lost 1.51pc and the DAX is 2.08pc off. The FTSE MIB has tumbled 3.02pc and Spain's IBEX has dropped 2.87pc.

08.47 The yield on French ten-year bonds has been edging up in response to the presidential election results, just as markets have slid the other way. They're currently up to 3.106pc, from 3.081pc late Friday - as investors demand higher returns on the risk of lending to the nation.

Francois Hollande, who now looks set for victory, has said he'll re-negotiate terms of a pact that bound eurozone governments to reduce deficits and debt.

06.37 Today the eurozone crisis looks likely to focus on the Netherlands, where key budget talks broke down over the weekend.

The anti-immigration politician Geert Wilders walked out on Saturday, turning his nose up at €16bn in cuts that the country needs to hit austerity targets. He called for elections to be held "as soon as possible" and added that he couldn't allow the Dutch to “pay out of their pockets for the senseless demands of Brussels”.

Now it's expected that the Prime Minister Mark Rutte will hold an emergency cabinet meeting and step down, potentially derailing the eurozone debt rescue plan: rating agency Fitch has warned that the country could be stripped of its AAA status if it doesn't hit its targets.

[James1:12]

15.28 The Dutch PM Mark Rutte has offered his own resignation and that of the cabinet to the country's Queen Beatrix.

His resignation has been accepted, according to a Dutch news service.

The government had collapsed after talks over measures to slash the country's budget deficit in line with new eurozone regulations failed at the weekend.

[James1:12]

20.55 Ambrose Evans-Pritchard (who regular readers will remember was writing about the Netherlands as the next eurozone crisis spot a whole week ago) says this week has seen the centre ground in Europe start to collapse.
It's Mrs Merkel's nightmare, he writes:
Europe's political centre is starting to crumble, replicating the pattern of the early 1930s as the crisis ground into its third year under a similar mix of fiscal and monetary contraction.
Elected governments have already been swept away - or replaced by EU technocrats without a vote, indeed to prevent a vote - in every eurozone state where unemployment has reached double-digits: Spain (23.6pc), Greece (21pc), Portugal (15pc), Ireland (14.7pc) and Slovakia (14pc).
The political carnage has been striking. Ireland's Fianna Foil, creator of the Irish free state, has lost every seat in Dublin. Greece's Panhellenic Socialist Movement (PASOK) - torch-bearers of Greek democracy since the Colonels - has fallen to 14pc in the polls and faces ruin next month.
This week the tornado has smashed into the core, bringing down Holland's govenment and probably the French leader Nicolas Sarkozy as well in a cacophany of anti-EU diatribes.

What next? I think it will still take a severely intensified economic collapse perhaps provoked by military action in the middle east to convince the likes of Germany to hand power to the EU under a super president or similar.

[burien1]

Thanks for keeping us updated, James 1:12.

[James1:12]

No problem Burien.

The UK has just re-entered recession after 2 consecutive months (not months,quarters - edit) of economic decline and now France is attacking Merkels fiskalpact:

21.00 So while Francois Hollande has been making waves (see 20.15 post), Nicolas Sarkozy has been doing all he can to hang on to the title of French president. And both men have decided the eurozone budget treaty is not a vote-winner.
Louise Armitsead reports:
Nicolas Sarkozy has promised to hold a referendum on Europe's fiscal pact, dealing a hammerblow to Angela Merkel's "non-negotiable" plans to impose austerity on the eurozone.
The French president, who is struggling in his bid to be re-elected, said he intended to insert the "balanced budget" rule into the French constitution, as agreed in the pact. But in a concession that will dismay the German Chancellor, he said he was prepared offer the electorate a say on the controversial issue.
"If the Senate were to block the rule's adoption, then before the end of 2012 I would organise a referendum to ask the French people what they think," he said.
Ms Merkel has said that the pact, which binds eurozone countries to keeping their deficits below 3pc, was "non-negotiable" and would "last forever".

The more I hear from German leadership be it the Chancellor or Finance minister the more I'm reminded of Comical Ali at the end of the allies "shock and awe" campaign when Baghdad was taken.

And the EU goes too far.....

16.45 It's not just the eurosceptics of these isles who object to the amount of money we send to the European Union to keep its institutions running - more committed members of the euro fold are also outraged by the EU's plan to increase its spending by 6.8pc to €138bn next year.
French government spokeswoman Valerie Pecresse said:
It is impossible, unjustifiable and unacceptable that the European Union asks each of its members to make efforts to reduce their deficits and spending, and at the same time it proposes a 7pc increase in its own budget.
Treasury minister Mark Hoban also said it was time to hold the EU institutions accountable:
It's important to get an alliance of member states together to make sure that the Commission and the (European) Parliament see sense.

10 states perhaps?

[burien1]

Just a little side bar here.

I'm reminded of Comical Ali

Wonder what ever happened to that fella ?

[James1:12]

According to Wikipedia:

Although questioned by American authorities, al-Sahhaf was released, and there has been no suggestion of charging or detaining him for his role in the Saddam Hussein government. He is now living in the United Arab Emirates with his family.[citation needed]
When asked where he had got his information he replied, "authentic sources—many authentic sources".[11] He pointed out that he "was a professional, doing his job".

[James1:12]

http://www.telegraph.co.uk/finance/fina ... -pact.html

France's Francois Hollande and Germany's Angela Merkel clash over euro austerity pact
The growing gulf between France and Germany was underlined as the eurozone's two biggest economies clashed over tackling the debt crisis......

.......The question of how to address the eurozone's debt burden is toppling governments across Europe. The three-month-old Romanian government fell on Friday as it lost a no-confidence vote over state asset sales.
Against a backdrop of rising concerns, the pound hit a two-and-half-year high against a basket of currencies tracked by the Bank of England.

[James1:12]

Informal EU summit on growth possible before June

http://euobserver.com/18/116053

"We will be meeting again in June within the European Council to take important decisions and I do not exclude convening an informal leaders’ dinner at an earlier date for an open exchange of views on how best to prepare matters for June," he said, in reference to a planned 28 June summit.

.......

But Belgium's Socialist Prime Minister Elio Di Rupo picked up on the "growth compact" idea proposed by Francois Hollande, the Socialist candidate for the French presidency, saying Europe had to "find new instruments for growth."

Di Rupo talked of "revolutionising mentalities" and pushing for more "entrepreneurial risk-taking" in Europe. "We have to mobilise all our intelligence to put Europe back on track to prosperity," he said.

Spain downgraded over spiralling recession

http://euobserver.com/19/116059

The US-based agency also took a swipe at eurozone leaders' response to the lingering crisis: "In our view, the strategy to manage the European sovereign debt crisis continues to lack effectiveness."

"We think credit conditions, and hence the economic outlook for Spain, could now deteriorate further than we anticipated earlier this year unless offsetting eurozone policy measures are implemented to support investor confidence and stabilize capital flows with the rest of the world."

.....

"This is not the last downgrade of Spain's credit rating. Expect more downgrades both for Spain as well as for other Eurozone economies as the flawed austerity-first approach starts to take its toll," he said in an emailed statement.

[James1:12]

08.05 BREAKING

Spain is back in recession. The economy contracted by 0.3pc in the first three months of the year, plunging Spain into a technical recession after gross domestic product (GDP) fell by 0.3pc in the fourth quarter of 2011.

The quarterly contraction is less than the 0.4pc expected by economists polled by Bloomberg, but it's official - Spain is in a double dip.

09.21 Europe's crisis is also bringing out extremists on both sides of the political spectrum. Following the rise in popularity of Marine Le Pen's Front National party in France, two political mavericks in Greece are gaining traction among voters ahead of elections this week.

Economist Panos Kammenos, described as a "firebrand nationalist" by the Wall Street Journal, and "soft-spoken former Communist" Fotis Kouvelis could command almost 20pc of the vote on Sunday, according to the WSJ.

Their rise is cutting deeply into support for Greece's two mainstream parties - the conservative New Democracy led by Antonis Samaras, and the socialist PASOK party, led by former finance minister Evangelos Venizelos.

Italian voters are also contemplating what life after Mario Monti will be like when his tenure comes to an end in 2013. According to this week's Economist, some voters have turned to laughter to get them through the crisis:

Those on the right are tarred with economic failure. Those on the left are split into three mutually antagonistic groups. No wonder a party that rejects all the others seems to be doing just fine. A poll for l’Espresso magazine on April 20th showed the Five Star Movement, led by the comedian and blogger Beppe Grillo, taking 7.5% of the national vote. His humorous, ranting brand of anti-politics is expected to bring him success at the first big test of public opinion since Mr Monti became prime minister, the local elections on May 6th and 7th.

10.59 Cyprus is at a "critical" juncture, according to the governor of its central bank. Athanasios Orphanides, who steps down next month, told legislators in parliament:

The economy of our country is going through critical times. The right handling is required. At stake is not only the economy of Cyprus and the well-being of its citizens, but its national reputation and standing.

Ratings agency Fitch warned last week that the "interconnectedness of the Cypriot banking system and the Greek economy has made Cypriot banks vulnerable to developments in Greece," while Moody's predicted that the government would need to pump up to 10pc of GDP back into its ailing banks to restore capital ratios following the Greek debt writedown.

Cyprus is one step away from being relegated to the eurozone junk pile. The country is already regarded as below investment grade by Standard & Poor's and Moody's. Fitch rates Cyprus at "BBB" - just above junk.

[James1:12]

12.01 Is Goldman Sachs to take the Bank of England too? Jeremy Warner examines Jim O'Neill's (below) chances of taking the top job at the Bank of England when Sir Mervyn King steps down next year:

You cannot be serious", reads the best rated comment on our story today that Jim O'Neill, chairman of Goldman Sachs Asset Management, is in the running to be the next Governor of the Bank of England. Why not? In fact he'd make an excellent Governor, and in most respects, would be a perfect fit for the job. [...]

As for Goldman Sachs, well their alumni do seem to get absolutely everywhere, don't they. Among central bankers alone, they already count Mario Draghi, president of the European Central Bank, and Bill Dudley, chairman of the Federal Reserve Bank of New York, among their number. Outside central banking, the list of those who have moved effortlessly from the gilded world of Goldman Sachs to the senior ranks of public service seems to be almost boundless – Mario Monti, prime minister of Italy, being the most obvious of the present batch of incumbents.

[James1:12]

13.31 For a while the eurozone crisis died down, giving many hope that a slow and steady recovery could finally begin. But it's back with a bang, writes Jeremy Warner.

The eurozone crisis is back with a bang, with the pain, once again, most visible in Spain. The Spanish IBEX is being hammered on the latest PMI data, which points to an ever deepening recession. But it's not just Spain. The data on the eurozone labour market and manufacturing sector as a whole is appalling, with the recession now manifestly metastasising out from the euro area periphery to the core. Even the German unemployment rate is now rising.

13.09 A quick update on European markets now. A big slump in eurozone manufacturing and a rise in unemployment have hit confidence.

The FTSE 100 is off 0.56pc, the IBEX is 2.55pc lower and the FTSE MIB has dropped 1.75pc.

Only France's CAC and Germany's DAX are in positive territory, by 0.72pc and 0.18pc respectively.

[James1:12]

http://euobserver.com/19/116128

Draghi: euro countries to lose even more sovereignty

"But the thirdly and most importantly is that we collectively have to specify a path for the euro. How do we see ourselves in 10 years from now ...We want to have a fiscal union? We have to accept the delegation of fiscal sovereignty from national to some form of central [government]," he said.

In getting there, politicians should however refrain from talking about a "transfer union" as a starting point, he said, in reference to richer countries automatically paying for poorer ones, a concept most loathed by Germany and its independence-wary Bundesbank.

"That is why the fiscal compact is so important, that is the starting point," Draghi noted.

[James1:12]

• New crisis looms as Spain prepares bank bail-out
• Pound close to a three-and-a-half year high against euro
• Germany says no to reworking euro fiscal pact
• Greek far left leader criticises "bailouts of barbarism"
• Japan urges Hollande to stick to reforms
• Christine Lagarde: Austerity versus growth is a "false debate"

10.07 Bruno Waterfield, our Brussels correspondent, sends this post-election update. One EU official told him this morning:

I woke up this morning thinking that we were looking into the abyss again. Then I realised that implications and events are so dizzying that perhaps we've fallen and it's La Chute, downfall.

11.39 The EU has called its very own extraordinary general meeting on May 23. European Council president Herman Van Rompuy announced on Twitter

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12.47 The European Commission has refreshed its bid to boost jobs and growth in the eurozone. EC president Jose Manuel Barroso said:

...if we are serious about investment for growth, we need to agree an EU budget for the next seven years that shifts the focus of spending to growth enhancing measures, and focus also in competitiveness – and I would also add the budget for this year because some of the measures should indeed be frontloaded. I hope that Member States which are calling for more measures to support growth will reflect this in their positions on the EU budget. It will be a contradiction to support growth through investment and not be able to commit the funds necessary to work for that at the European level.

[James1:12]

12.45 The Telegraph's Alex Spillius paid a visit to Golden Dawn's HQ this weekend. The party will fill 21 seats in Greece's new parliament

Golden Dawn rejects the neo-Nazi label, though members have expressed admiration for Hitler and there is a photograph on the wall of its Athens headquarters of members at a large night rally giving the seig heil salute.

It was there I spoke to Yiannis Vouldis, then a candidate, now an MP-in-waiting after winning a seat from Athens’ second prefecture.

He made derogatory remarks about Africans and Asians which I won’t pay him the compliment of repeating here.

He admitted that violence was sometimes necessary on Golden Dawn operations to remove illegal immigrants from various locations. “Sometimes words don’t do the job,” he said.

He described one such action at a hotel in central Athens a couple of years ago as “a good fight” with “lots of injuries”.

The risk now is that the party’s goons will regard their success at the polls as a mandate to do as they please in the capital’s slums and ghettos.

[James1:12]

09.40 Portugal has scrapped four of its 14 bank holidays in an attempt to keep its economy afloat.

According to Portugal's public service broadcaster RTE, the Vatican was consulted over which Catholic festivals to cut. Alvaro Santos Pereira, economy and unemployment minister said:

The idea is to work harder and better to have a country that produces more riches, a country that will create jobs and certainly a country that is more competitive.

The changes come into effect next year. By contrast, the UK has eight bank holidays.

09.11 The euro also continued its decline this morning. The single currency fell below the $1.30 mark against the dollar, to $1.2965. The euro was also slightly down against the pound, at €1.2432.

Spanish bond yields have spiked this morning. Borrowing costs on 10-year debt rose by 12 basis points to 5.908pc. The IBEX 35 index in Madrid has also fallen 0.9pc this morning, with banks bearing the brunt of the losses.

[James1:12]

10.20 Greece will exit the euro by the end of the year, according to economists at Lombard Street Research. Jamie Dannhauser, an economist at Lombard, said:

Political stalemate (or worse) could persist for some time. The Troika has threatened to block disbursement of further funds to Greece unless the Parliament passes a package of additional reforms and fiscal retrenchment. But it is hard to see how a government could be in place to push through such policies in time. Ms. Merkel has made her position clear – austerity measures are “not negotiable” for the Germans. [...] At the end of the day, the Greeks may decide that further austerity is a price worth paying for EMU membership. Alternatively, the Germans may swallow their pride and allow the Greeks to renegotiate the terms of their financial aid package. Most likely, however, is the third option – a Greek exit from the €. It is quickly becoming apparent that for Ms. Merkel this is the least damaging route to tread.



Lombard: "It is clear that most Greeks are opposed to the scale and pace of fiscal retrenchment taking place. Given the rate at which the Greek economy is heading into oblivion, it is not clear why this should change (see chart above)".

[James1:12]

12.31 Tearing up Greece's bailout aggreement will lead to "certain and immediate" catastrophe, according to Antonis Samaras, the leader of the New Democracy party. Mr Samaras said:

Denouncing the agreement [...] will lead to immediate internal collapse and international bankruptcy, with the inevitable exit from Europe [...] The agreed amendment of the loan deal is one thing, it is a completely different thing to unilaterally denounce it.

Mr Samaras also urged Syriza leader Alexis Tsipras to retract a statement yesterday that rejected Greece's bail-out deal as "null and void". He said:

If he does not do this, it means that he is trying to build a broad anti-European front and to take us to elections again. The Greek people have not given a mandate to destroy the country.

11.50 Brussels is not prepared to renegotiate the "fiskalpakt" that enshrines tough budget rules into European treaty law.

European Commission head Jose Manuel Barroso was asked whether there could be a renegotiation of the fiscal treaty. His reply?

"No."
Earlier, Mr Barroso said that Greece must stick to the terms of its bail-out agreement or face "very negative" consequences. He told German broadcaster WDR:

If this agreement is not respected, it will be very negative for Greece [...] But the agreement is not just about fiscal consolidation, it’s also about growth.

[James1:12]

David Cameron: euro needs single government

http://euobserver.com/1016/116191

British Prime Minister David Cameron told the Daily Mail newspaper that a successful eurozone requires a single government "There's nowhere in the world that has a single currency without having more of a single government," he said in Wednesday's edition. The eurozone accounts for 40 percent of UK's exports.
.

[burien1]

David Cameron: euro needs single government

http://euobserver.com/1016/116191

British Prime Minister David Cameron told the Daily Mail newspaper that a successful eurozone requires a single government "There's nowhere in the world that has a single currency without having more of a single government," he said in Wednesday's edition. The eurozone accounts for 40 percent of UK's exports.
.

[James1:12]

08.48 Following last night's Bankia bail-out, the BBC's business editor Robert Peston asks if Spain will suffer an Irish-style bust:

Based on the recently published results of Spain's seven publicly listed banks, the investment bank Morgan Stanley calculates that lending in Spain is contracting at a damaging annual rate of around 8%. A credit crunch is exacerbating Spain's recession.

If all this sounds familiar, that is because it is - to a great extent - a re-run of the collapse of Ireland's banks.

Just like Spain, Ireland for months insisted it had the resources to sort out its banks on its own. But in the autumn of 2010, it capitulated in the face of horrific market reality, and went cap in hand to the eurozone and IMF.

The other lesson of Ireland, many would say, is that the longer a government fails to face up to the true weakness of its banks, the bigger the eventual costs of the remedy

[James1:12]

11.09 One person not betting on a Greek exit (yet) is European Central Bank (ECB) member Ewald Nowotny, who told reporters in Vienna that any talk about an exit was "premature". He said:

What we have to discuss now is how to solve this situation we see now. The key for solving this lies with the Greek government and the political system. We have to see how this is developing but we don’t have an infinite amount of time. Time flies.

Indeed.

[James1:12]

http://www.telegraph.co.uk/finance/fina ... -exit.html

Germany plans to make the EU responsible for the Eurozone crisis, including the UK:

Britain to share costs of Greek exit
Germany has drawn up plans to make Britain pay a share of the multi-billion pound clean-up costs if Greece is ejected from the euro, risking a clash with Downing Street.

Code: Select all

The crisis is escalating in a string of countries. Italy is mulling plans to deploy troops to protect tax offices and industrial groups after petrol bomb attacks. The head of Ansaldo Nucleare was shot and injured by anarchists last week.

http://www.telegraph.co.uk/finance/comm ... -euro.html

The final death throes of the euro
The euro crisis is entering its final stages. Economic pain is now interacting with political resistance to produce intense financial pressure. I expect Greece to leave the euro – and perhaps very soon.

[James1:12]

http://euobserver.com/1016/116271

Rating agency Moody's on Monday downgraded the credit ratings of 26 Italian banks, including Italy's largest lenders Unicredit and Intesa Sanpaolo, making it more expensive for them to finance their activities via the capital markets. Moody's is also expected to cut the ratings of Spanish banks.
.

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11.15 Henry Samuel, our man in Paris, has been listening to new French president François Hollande, who has mentioned his plan to agree a new fiscal pact among eurozone countries, overthrowing the one agreed earlier this year.

The president said:

Today many peoples, starting with those in Europe, are awaiting and watching us. To overcome the crisis hitting it, Europe needs projects, it needs solidarity, it needs growth.

To our partners I will propose a new pact that will combine the necessary reduction of public debt with indispensible stimulation of the economy.

[James1:12]

• Bank of England cuts growth forecast, eurozone 'biggest risk'
• Markets fall on Greece euro exit fears
• Greece to hold elections on June 17, names caretaker leader
• Hollande: we want to work together for the EU
• Bondholder fury as Athens pays off debts to hedge funds
• Osborne wins EU battle for tougher bank rules

12.51 David Cameron has spoken on the eurozone crisis during Questions this afternoon. He said the EU either has to "make up or break up" and that the choice can't be put off for long:

The eurozone has to make a choice. If the eurozone wants to continue as it is, then it has got to build a proper firewall, it has got to take steps to secure the weakest members of the eurozone, or it's going to have to work out it has to go in a different direction. It either has to make up or it is looking at a potential break up. That is the choice they have to make, and it is a choice they cannot long put off.


12.38 Shares in Bankia are down almost 10pc today, after the Bank of Spain ordered the newly bailed-out lender to come up with a new plan to sort out its real estate assets. Bankia said in a statement:

The Bank of Spain, in view of the events of the last few weeks and the growing uncertainty about the future of the entity, has demanded the presentation of a strengthened plan.

Bankia is the biggest holder of bad property debt in Spain, having been formed by the merging of seven weak banks in 2010 in an attempt to turn them all around with improved efficiency.


11.00 Sir Mervyn is on the subject of the eurozone - the region is "tearing itself apart", he says. The ECB has not addressed the fundamental problems, although it has acted "heroically" he says.

The problem is the imbalances between north and south, the Bank governor says, which need to be tackled.

10.50 More from Sir Mervyn King - he's using nautical metaphors - we are in turbulent waters with "the threat of a storm coming towards us."

[James1:12]

13.13 Bankia is being put through the wringer today, but there could be worse news this evening. There are reports that rating agency Moody's is poised to downgrade up to 21 Spanish banks at 7pm London time. We'll bring you more news on that later.

12.55 The turmoil is having an effect on the currency markets: the euro's at its lowest level against the US dollar since January, and each one will currently buy you just $1.2678.

And German ten-year bond yields have sunk all the way to 1.423pc as investors seek somewhere safe to stow their cash, while Spanish ten-year yields are at 6.321pc after this morning's disappointing auction (see 09.54).

12.45 And Europe's markets are also taking a battering today, thanks in no small part to the drama at Bankia.

The FTSE 100 has now lost 1.29pc, the DAX has dropped 0.86pc and the CAC has slipped 1.12pc. Spain's IBEX is at its lowest level since 2003, having fallen 1.94pc so far.

11.13 Shares in Bankia are plunging today, down 21.87pc. And this comes after an 11pc fall yesterday. In fact, if it ends in the red today it will be the tenth negative trading session for the government-backed lender. This morning we heard that customers had pulled €1bn from the bank in the last week alone.

[James1:12]

16.02 Jose Manuel Barroso is talking now at the UN in New York:

We are on the right track, and I bring you a message of confidence. Beyond the so-called sound and fury we are making good progess in laying firm foundations for economic recovery and sustainable growth. The lessons of the financial crisis must be absorbed by all of us.

He's reaffirmed that he wants Greece to stay in the eurozone.

Phew, its all over.

[James1:12]

16.14 The EU needs an elected president to foster greater political unity, says German FM Wolfgang Schaeuble: "Europe must have a face".

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http://www.ft.com/cms/s/0/b6a69d9c-a021 ... z1v8tM6SN3

Wolfgang Schäuble, Germany’s finance minister, called on Thursday for the EU to move decisively towards a political union in the face of the eurozone crisis, with a directly elected president in Brussels.

[Ready1]

Before long they are going to get it down to ten nations...

[James1:12]

11.04 Reuters has reported that the failed talks to form a coalition in Greece on May 17 were "a complete madhouse".

"Gentlemen, we are finished," said the patrician President, calling an abrupt halt to two hours of baiting and cat-calling between furious Greek politicians. "I'm starting to get upset myself now. We are finished."

"It was a complete madhouse," a source at the socialist PASOK party told Reuters after their leader, Evangelos Venizelos, returned from the May 17 showdown. "The discussion was unbelievable."



A shoe shiner tries to keep warm next to an hourglass graffiti in Athens

Reuters also offered an insight into what Brussels thought of the failed talks.

"Pythagoras didn't manage to square the circle and God knows these guys don't know how to either," said one EU diplomat, echoing widespread sentiment in European capitals.

"The Greeks seem to have no understanding of the seriousness of their predicament and that is a great source of frustration. There's a breaking point and I think we're getting close to it."

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07.10 Whether eurobonds become a reality or not, the 'Latin Bloc' is in full revolt, writes Ambrose Evans-Pritchard, leaving Germany increasingly isolated:

The trio of French, Italian, and Spanish leaders - backed by world powers - are to push for a radical shift in Europe's economic strategy at crucial summit on Wednesday.

They will propose eurobonds to finance an infrastructure blitz, a sort of Marshall Plan to revive confidence even if long-term benefits will take years to feed through.

While the moves are couched in diplomatic language, the clear aim of French premier François Hollande, Italian premier Mario Monti, and Spanish premier Mariano Rajoy is to wrest control of the EU's governing machinery from Germany.

Mr Monti said over the weekend that Mr Hollande's "entry into the game" had changed Europe's political dynamics. He has an ally "on the same wave-length".

[James1:12]

07.10 Whether eurobonds become a reality or not, the 'Latin Bloc' is in full revolt, writes Ambrose Evans-Pritchard, leaving Germany increasingly isolated:

The trio of French, Italian, and Spanish leaders - backed by world powers - are to push for a radical shift in Europe's economic strategy at crucial summit on Wednesday.

They will propose eurobonds to finance an infrastructure blitz, a sort of Marshall Plan to revive confidence even if long-term benefits will take years to feed through.

While the moves are couched in diplomatic language, the clear aim of French premier François Hollande, Italian premier Mario Monti, and Spanish premier Mariano Rajoy is to wrest control of the EU's governing machinery from Germany.

Mr Monti said over the weekend that Mr Hollande's "entry into the game" had changed Europe's political dynamics. He has an ally "on the same wave-length".

[James1:12]

08.39 Telegraph deputy editor Benedict Brogan looks at today's events:

Another day of Eurogeddon awaits. Nick Clegg is giving a speech, warning that Grexit could be disastrous for the UK. Follow the day’s events on our live blog here.

He’ll echo the PM’s call for “decisive” action, saying that the European response to the crisis has been “woefully fragmented”, before adding that Britain must stop treating the euro crisis as a problem that affects only the members of the single currency. He is expected to say:

“We have created different classes of country: strong and weak, spenders and savers, eurozone and non-eurozone. But these divisions are false. It is piecemeal politics; endless tactics with no strategy. This is a European crisis. It must be solved at the European level.”

[James1:12]

Just wanted to say - the above post - very "iron and clay".

12.40 Bulgaria has joined Germany in opposing joint eurobonds. Prime Minister Boyko Borisov said: "Debt puts burden on the next generations... Nothing good awaits Europe if it goes down this path."

[James1:12]

14.55 More from ECB President Mario Draghi now, who's speaking in Rome: he's called for governments to take a "courageous leap" of political imagination to save the eurozone. He also rejected criticism of the ECB's cheap LTRO loans and said it would take time for their effect to kick in:

We have reached a point in which the process of European integration needs a courageous leap of political imagination in order to survive.

[James1:12]

14.17 ECB President Mario Draghi: "Now is a crucial moment in the history of the EU. EMU governments must jointly and irreversibly define a vision. European intervention needs brave leap of imagination.

[milo3]

Thanks for all the updates James 1:12. I really appreciate it.

milo3

[James1:12]

No problem milo, it's a pleasure.
The news is moving so fast these days its good to be able able to post on this site for others to follow as well.

[burien1]

No problem milo, it's a pleasure.
The news is moving so fast these days its good to be able able to post on this site for others to follow as well.

I appreciate it, too. Has me on the edge of my seat again.

[James1:12]

So, on with the show.....

For the eurozone, the worst is yet to come
This euro crisis is now getting extremely serious. Events are happening quickly, closing-in on policy-makers and threatening to engulf us.

http://www.telegraph.co.uk/finance/comm ... -come.html

[Abiding in His Word]

I'm following as well, James1:12. Thank you for the updates.

[James1:12]

This is the day that Spain took a turn for the worse:

12.56 Quick look at the markets following Rajoy's speech:
FTSE 100 +0.8pc
CAC +0.9pc
DAX +0.7pc
IBEX -1.4pc
MIB +0.2pc
Spain down heavily. Only one of the main European markets in the red. Spanish 10-year bond yield now at 6.4pc. If you're wondering why high bond yields are so important, the Telegraph's Amy Wilson has written an article explaining everything you need to know.
Nicholas Spiro, at Spiro Sovereign Strategy:
The Spanish crisis has reached a tipping point. Investors have lost confidence in Spain. The botched bail-out of Bankia was the trigger for this morning's abrupt sell-off - a sell-off that threatens to turn into a rout unless bold and decisive measures are swiftly taken by eurozone policymakers to shore up the bloc's endangered sovereigns and their banks.
Spain has become the focal point for market anxiety about the pernicious links between distressed sovereigns and their banks. Although Spain's banking woes are much less severe than Ireland's, the same negative feedback loop that felled Ireland in 2010 is undermining confidence in Spain.
What is most concerning, and what necessitates speedy action on the part of the eurozone, is that the Rajoy government is stuck in a rut. It is in a '****** if it does and ****** if it doesn't situation'.

14.10 Ambrose Evans-Pritchard believes Spain has run out of money:
Where is the €23.5bn for the Bankia rescue going to come from? The state's Fund for Orderly Bank Restructuring is down to €5.3bn, and there are many other candidates for that soup kitchen... I fail to see how Spain gains anything durable from an EFSF loan package. The underlying crisis will grind on. Yes, the current account deficit has dropped from 10pc to 3.5pc of GDP, but chiefly by crushing internal demand and pushing the jobless toll to 5.6m. The "unemployment adjusted current account equilibrium" — to coin a concept – is frankly frightening.
Spain is quite simply in the wrong currency. That is the root of the crisis. Loan packages merely drag out the agony.

[James1:12]

13.37 European Commission President José Manuel Barroso has called for a timetable and roadmap to full economic and monetary union in eurozone.
We will not have sustainable growth as long as we have unsustainable debt. We are starting to see a rebalancing of the European economy. Deficits are falling across Europe and this is the best way to build confidence and cut borrowing costs. We must remember that every euro we save on servicing debt is a euro available for jobs and investments.

"The Commission will monitor the impact of tight budget constraints on growth, enhancing public expenditure, and on public investment. If necessary, the Commission will give guidance on the scope for possible action within the boundaries of the European Union and national fiscal frameworks. In the coming months, the Commission will issue a report on the quality of public spending which will deal with this very important issue.
"We believe that Member States, that are now with the euro, will need to deepen their integration to attain full economic and monetary union. It is very important, even if you believe that it doesn't come immediately, to define the trend, the objective. It is very important also in terms of confidence for the investment in the Euro area now. We will support an ambitious and structural approach which should include a roadmap and a timetable for a full economic and monetary union in the Euro area.

[James1:12]

17.49 Reuters reports that the EU has prepared a draft law that would oblige European states to bail-out each others banks. The EC is expected to propose the new rules, which include "aggressive intervention powers" on June 6.
It could be enforced by 2014, and would demand that states collect an annual levy of 1pc of deposits from banks to hold in reserve in case of a collapse.

[James1:12]

http://euobserver.com/843/116422

European Commission President Jose Manuel Barroso has said he is going to push for an "early" plan for further integration in the eurozone, claiming political momentum is on his side.

However, Barroso indicated that EU leaders' thinking is constantly evolving. "The movement is in favour of more integration in the euro area," said the commission president

[James1:12]

http://www.telegraph.co.uk/finance/fina ... rkets.html

We’re in a situation of total emergency, the worst crisis we have ever lived through” said ex-premier Felipe Gonzalez, the country’s elder statesman.

The warning came as the yields on Spanish 10-year bonds spiked to 6.7pc, pushing the “risk premium” over German Bunds to a post-euro high of 540 basis points. The IBEX index of stocks in Madrid fell 2.6pc, the lowest since the dotcom bust in 2003.