Debt crisis: as it happened, June 12, 2012 Alexis Tsipras gives a press conference at the in central Athens on Tuesday (Photo: AFP) 18.51 More fighting talk from Greece's leftist leader. Alexis Tsipras has insisted that Greece's bail-out deal would be "history" after Sunday's vote. The bailout deal is already in the past. It will be history for good on Monday. 18.40 Paul Tucker, a deputy governor of the Bank of England, has urged the Bank to consider measures to ease tight lending conditions. Given the costs to our economy, the authorities, including the Bank, need to consider what more we could do to alleviate tight credit conditions in the UK At the least, banks need to be free to draw on their liquidity buffers in order to absorb current pressures. 18.07 We're often told by David Cameron and George Osborne that a break-up of the eurozone would be bad news for the UK. Not so, argues Jeremy Warner - the euro hasn't benefited Britain's trade with Europe one jot: The UK Government's working assumption, constantly repeated like a mantra by both the Chancellor and the Prime Minister, is that a breakup of the euro would be a disaster for Britain. Perhaps this message is intended purely for diplomatic consumption, or as a kind of gesture of international support for our poor beleaguered neighbours on the Continent. Or perhaps they are referring to the immediate financial and economic dislocation that would admittedly follow any kind of disorderly breakup - cascading default, bankruptcy and breach of contract. Or perhaps they genuinely believe it. Any reading of the Pink Book, however, reveals that a return to sovereign currencies in Europe would, once the dust has settled, be overwhelmingly in Britain's best economic interests. 17.38 Despite a change in odds from bookmaker William Hill earlier, the ECB doesn't expect Greece to leave the eurozone, says deputy president Vitor Constancio: We don't see that happening. We don't see that Greece will exit the euro area. For Greece, such a scenario would be a "very, very serious situation." Asked about recent turmoil in the euro area, Constancio said the concerns focused for the most part on Italy and Spain and had nothing to do with Greece. Constancio also said it would be "very difficult, if not impossible" for the ECB to assess what might happen if a country were to abandon the euro. 17.17 Last year New York magazine published The Absolute Moron's Guide to the Euro Crisis, but a lot has changed since then, so it was time for The Absolute Moron's Guide to the Euro Crisis - Part II. On the whole, it's a great primer on the crisis so far for those who haven't been following it - we just object slightly to the bit where it calls financial journalists "bored, miserable creatures." Here's a snippet: Ugh, this Europe thing is still happening? Well, yes. The most recent thing is the Spanish bank bailout, which was announced last weekend. Ooh, Spain! I went to Ibiza on spring break during college. They pronounce it "Eeveetha." This guy named Ignacio took me to a rave and I swear we were dancing until like 7 a.m. That's great. Anyway, after months of speculation and hand-wringing, Spain agreed to take a bailout - which some people are calling "Spailout" because it's fun to combine words - that will help it recapitalize its banks. Recapitalize? Is that like when you're texting on an iPhone and you want to type "mark" but it keeps changing it to "Mark" because it thinks you're talking about your friend Mark and then you scream at Siri, "I'm not talking about Mark, Siri!!!" That was a good effort, but no. Recapitalization is a fancy way of saying that Spain's damaged banks needed to raise a whole bunch of money in order to avoid dragging down the entire Spanish economy - not to mention Europe, the United States, and the rest of the money-loving world. This weekend, Spain finally admitted it needed outside help, and asked the European Union for a big bailout package. 17.01 Fitch warned today that some Spanish bank's loan portfolios could deteriorate, putting even more stress on the sector. Edward Hugh, an independent economist based in Barcelona, said: 16.45 European markets have closed for the day, staging a small rally in closing trade to end positive despite huge pressure on bond markets in Europe as fears persist that Spain's bailout is just a temporary fix. The FTSE 100 rose 0.76pc on the day, Frankfurt's DAX was 0.34pc higher and the CAC in Paris gained 0.14pc during the session. Spain's IBEX has climbed 0.09pc. The eurozone crisis intensified today as Spain's borrowing costs hit a new high edging closer towards the critical 7pc level. It only took two days for the yield on their 10-year bond to mark the record following the EU bailout that was supposed to be the answer to all their problems. In honesty it's a wonder that the FTSE held up so well and didn't suffer from any more downward pressure itself. Across the Atlantic, the Dow Jones has gained 0.9pc, the S&P 500 is up 0.79pc and the Nasdaq has risen 0.85pc. 16.31 ECB board member Jozef Makuch has joined his colleague Ewald Nowotny and said that a zero-interest rate policy could be possible in the eurozone, but warned that lower borrowing costs would have "a very limited impact." 15.56 Spanish bond yields have eased off slightly over the last few minutes, to 6.74pc. Could that be the ECB stepping in to force them downwards, resuming the bond-buying plan it halted earlier this year? No, says Ambrose Evans-Pritchard - they're still on an upwards trajectory, this is a minor blip as investors see the chance to take profits. 15.45 More bad news for Spain: William Hill has cut its odds for a Spanish exit from the eurozone this year from 10/1 to 5/1. It's also shortened the odds on it being the first country to leave the eurozone from 7/1 to 4/1. Spokesman Graham Sharpe said: The bank bail out appeared to reduce the chances of Spain departing from the euro in the short term, but punters seem to believe that with their borrowing rate increasing they could still be vulnerable. Greece, though, remains the favourite at 1/8 to be the first country to quit the euro... 15.33 Indiana University professor Elinor Ostrom, the first woman to win the Nobel Prize in economics, has died at the age of 78. University spokesman Steve Hinnefeld said Ostrom died from cancer on Tuesday morning at a Bloomington hospital. Ostrom shared the 2009 Nobel Prize for economics with Oliver Williamson from the University of California, Berkeley. Both researchers were honored for analyzing the rules by which people exercise authority in companies and economic systems. 15.27 Swiss five-year bond yields go negative - investors are paying to lend money to the Swiss government... 15.21 Alexis Tsipras, leader of Greece's anti-bailout party Syriza, says June 17 vote will mean a new beginning where "we put the foundations for a new, democratic Greece." He declares an end to ministerial advisers with high salaries, pay of prime minister and ministers will be cut in half. He adds that "we are not pretending to be heroes or saviours, just responding to our patriotic duty." Tsipras wants to replace to old inefficient bailout programme. Adds: "We are not going to betray you. We will always tell you the truth, no matter how hard it is. 15.18 Greece's government has enough funds to meet its financing needs until the middle of July, says Skai TV. Spanish 10-year bond yields hit euro-era high of 6.834pc. Fitch Ratings has downgraded 18 Spanish banks' Long-term Issuer Default Ratings and 15 banks' Viability Ratings. Expects Spain to stay in recession in 2012 and 2013. 15.02 IMF chief Christine Lagarde says Europe needs to break free of debt crisis to grow. 14.53 Spanish bond yields, 10-year versus two-year: For a larger version of this graph, click the right-hand-side of the main picture at the top of this blog 14.49 European Union Commission Vice President Joaquin Almunia has said Spain should charge its banks at least 8.5pc on the loans. 14.47 General Motors chief executive Dan Akerson says he's cautiously optimistic that US political leaders will agree on an economic package to keep the country from tipping into a recession. 14.45 French PM Francois Hollande says Europe needs more investment, both private and public. 14.44 Euro turns negative against dollar: $1.2472. 14.30 US markets open. Dow up 0.2pc, Nasdaq up 0.4pc, S&P up 0.4pc. In Europe, FTSE 100 up 0.4pc, CAC up 0.4pc, DAX up 0.6pc IBEX up 0.6pc, MIB down 0.4pc. 14.23 Dutch Finance Minister Jan Kees de Jager says eurozone situation is "far from stable." Spanish 10-year bond yield passes 6.7pc - €100bn doesn't buy much anymore, does it?! 14.03 German official calls for a "global firewall." Merkel says fiscal pact is first step to more commitment. 13.58 Back to Osborne. The Chancellor emphasises his abhorrance of tax evasion. "It just knocks the legs from anyone who is trying to make the argument that, if you're living in a fair society you have to pay your fair share," if you hire "a bunch of lawyers and accountants" to help you avoid stamp duty. On the eurozone, he is asked whether it will survive: I ultimately don't know whether Greece needs to leave the euro in order for the eurozone to do the things necessary to make their currency survive. I would suspect that if you had a eurozone finance minister here, they wouldn't really know the answer to that. On the Spanish bailout: What is depressing ... is that everyone said to the eurozone that if you do not directly recapitalise these banks, if you do it via the Spanish sovereign, then you are not going to convince the market that the Spanish sovereign is entirely credible... and yet they went ahead down this route. The frustrating thing about all of this ...if we are always in our reaction to every problem is "too little too late, not quite enough," then we are going to have a long period of uncertainty and fragility within the eurozone. At least people must be beginning to see that just leaving the situation as it is and fixing each problem as it arises is just going to make a bad decision worse. Peter Mandelson says from the audience that many in the EU feel that, given the tone of the current UK governmental position, Britain is on its way out of the EU. Mr Osborne replies that Britain gives a lot of helpful advice behind the scenes to eurozone leaders. "It's not our currency ... these decisions are made" in the German Chancellory and the French Elysee Palace. However, he says Britain still has a seat at the table in discussions "but we are not going to be central to the decision of whether to let Greece go or keep them in." You could take a sort of classic Foreign Office view that you want a balance of power on the continent, not an accumulation of power... I am not saying that. I am saying that that accumulation of power on the continent needs to take place to allow that currency to be a success. So our prescription to what the eurozone needs to do is pretty similar to the prescription of what the eurozone needs to come up with. 13.53 Moody's says Poland and Czech Republic are havens in European debt crisis. 13.38 Back to Osborne at the TImes Summit. He calls on the business community to make their arguments louder about why lower taxes benefit society as a whole - at the moment, the argument is currently being dominated by those who call for businesses to pay more tax. He describes this as the "politics of envy." Accusing the business community of being too quiet, he says: "If you are not out there, engaged, in those arguments then you are going to leave the field open to those people who want to fill that space, and who argue that companies... have got to pay more tax." He says there is "more of an anti-business sentiment" today than when he came into politics. If the business community doesn't make a low-tax argument, he says: "You just see, otherwise, the politics of envy coming in and the politics that says it's perfectly acceptable for the state to take half of all national income." US Import Price Index falls to -1pc month-on-month in May from 0pc in April. 13.30 George Osborne is talking at the Times Summit. On whether the Budget had damaged the Government's reputation for competence: First of all, the Budget took some difficult decisions ... The most difficult was to cut the 50p tax rate. That was not, in a democratic country, the most popular decision to make, but ... it is one of those difficult decisions where all the politics points in one way and all the economics point in another way. Of course, we've had those problems ... and I am perfectly ready to accept that they caused lots of problems and political annoyance, but the combined projects are less than 5pc of the budget. I am perfectly prepared to accept that it has caused lots of bad headlines in the last two months, but I do think we have to take a step back and focus on what's important. He added that "most of the mistakes in politics come when politicians plough on with policies that won't work" and the government has had to take brave decisions to change them. Asked if the Government should focus on growth or deficit reduction: We're absolutely focused on growth: what bunch of politicians don't want to see the economy grow and jobs created? If I announced at this CEO summit we are not going to be reducing our budget deficit ... we are going to let it rise ... what would the reaction be? Of course, it is a challenge. He said serious problems were "bequeathed" to the Government. "I think when you look all the economies of the world having to acccommodate all the economies of the world and the eurozone," there were particular problems to face. Osborne is asked whether the deficit reduction plan has failed, he insists it has not: When you've got the Chinese government, the American government complaining at the moment that problems in the eurozone are affecting their economies, it's not surprising that this is impacting upon us as well. 13.25 Efthimia Efthimiou, a Greek journalist: 13.23 Merkel to urge extended moratorium on protectionism at G20. She adds that her country is in very good shape economically, and that structural reforms can have good results, but not overnight. Merkel says higher borrowing not the answer to euro woes. Euro is a "promise for the future"; Germany in "solidarity" with Europe. Right for Spain to request recapitalisation of banks. Merkel wants shared liability and shared control, calls for more Europe. Says discussing eurobonds "takes us down the wrong path." Merkel: "We must be prepared to give up national sovereignty to EU." Better EU banking supervision requires giving up more national supervision. Spain must restructure banking system as part of bailout. German official says downside risks rising in global economy. Germany to resist pressure for economic stimulus at G20, country will cite US and Japan debt levels at meeting. 13.03 Germany's Chancellor said Europe should push through a free trade agreement with Peru and Colombia. Angela Merkel, the leader of Europe's biggest economy, said moving on a free trade agreement with the Latin American nations would be "a positive sign" that could strengthen business ties at an economically difficult time for Europe. 12.58 Alithia, one of the largest newspapers (by circulation) in Cyprus (below), has said the country's government has asked Russia for a €5bn bilateral loan. 12.52 Spain's banking industry will undergo a "thorough restructuring" as part of its bailout, Olli Rehn, the European Union's economic policy chief, has said. With this thorough restructuring of the banking sector of Spain, together with the ongoing determined implementation of structural reforms and fiscal consolidation, Spain can gradually regain confidence and create the conditions for a return to sustainable growth and job creation. 12.47 A top official with Germany's central bank says Greece must stick with the spending cuts and economic reforms demanded as part of its bailout loans. Andreas Dombret, an executive board member at the Bundesbank, said that Greece needs to stick with its program "no ifs, ands or buts." On banking union he said: "A banking union in itself is not a bad idea but it needs to follow fiscal and political union." 12.38 The European Commission has said that eurozone officials had held contingency "discussions" in case Greece abandons the euro, after press reports of possible capital controls. "There are indeed discussions, and we are asked to clarify what is foreseen in EU treaties," Commission spokesman Olivier Bailly said. 12.34 France backs fiscal integration in the eurozone but believes the first priority should be solving the crisis in the region, Europe Minister Bernard Cazeneuve has said. Speaking after talks in Paris with his German counterpart Michael Linke, Cazeneuve said eurozone leaders urgently needed to compromise on steps to pull the region out of a debt-induced crisis and find concrete measures to boost economic growth. We wish to continue the political discussion on the process of greater economic and monetary integrations... at the same time this cannot constitute the urgent response to the crisis we face. 12.31 Mocked-up posters in Italy depicting German Chancellor Angela Merkel in a Nazi uniform, with a euro symbol instead of a swastika. You're paying for the bailouts, not the banks. Thanks a lot EMU. 12.18 Herman Van Rompuy, President of the European Council, has been tweeting following a visit to Slovakia: We'll continue to pursue our comprehensive strategy to growth and job creation. European Council will focus on growth agenda in all its forms. The June Council will discuss the Multi-annual Financial Framework. Our goal is to conclude this by the end of the year. There was general consensus that we need to further strengthen economic union and make it commensurate with monetary union. I am preparing a report in close collaboration with the Presidents of Commission, Eurogroup and ECB. I will propose the main building blocks on more banking, fiscal & economic integration to reach that objective. On the banking side, the report will cover issues such as more integrated banking supervision and resolution, as well as a common deposit insurance scheme. 12.14 Danny Blanchflower, former member of MPC, has lamented the weak UK PMIs out today: UK manufacturing output versus PMI: 12.13 SocGen: "Someone will throw a spanner in the Spanish rescue package and it would be odd not to expect it." 12.11 Spanish house prices fell 11.1pc year-on-year in May. Down more than 30pc since peak. 12.06 Francesco Caio, chief executive of Avio, a leading aerospace manufacturer, has told the Times Summit that the biggest crisis in business facing his country, Italy, is corruption. He adds that British companies - instead of bemoaning the obstacles placed in their path by central government and rule of law - should instead celebrate the fact that there are processes which are properly observed here. He says this is a great enticement for foreign investors. 11.40 Bruno Waterfield, our Brussels correspondent, sends over a precis of what a banking union across Europe would mean for the UK as the region's banking capital, and what power the Government could exert to limit the damage: The EU's banking union proposals, phased in from 2013, with treaty change to come later, herald the biggest EU fight for David Cameron's government. Banking union will be centrepiece of the June 28 EU summit. Britain will demand safeguards to protect the City, where the European Banking Authority is based. The UK made a demand for identical safeguards last December, which was rejected, but Mr Cameron has leverage as a single EU deposit insurance fund requires a unanimous vote from EU members. Britain is seen as unlikely to get changes to voting weights at EU banking supervisory bodies and councils of finance ministers. A eurozone-only banking union will create big problems for Britain, shifting power to Frankfurt and pulling the EBA away from London. If the UK vetoes a union at the level of 27 EU members, then banking union would be very unlikely to stay at 17 euro area countries - as many as 23 or 25. 11.46 Greece will reportedly unlock €40m from frozen bank accounts once belonging to now-failed gas and electricity suppliers to inject into the energy markets, helping avert a power crisis that threatens to disrupt supply in coming days. "Part of the money will be used to pay electricity producers... because there is a risk of electricity disruptions in the coming days," an unnamed court official said. 11.40 Linda Yueh from Bloomberg: 11.37 Time for a markets update: Spanish 10-year bond yield at 6.596pc. Italy's at 6.099pc. 11.31 Italian PM Mario Monti says Maria Fekter's comments on Italy are "completely inappropriate" (see 11.05). Says he will continue to work to guarantee euro-area stability with all tools. 11.18 EC "not aware" of Greek exit plans for capital and border controls to stop capital leaving the country. Adds that it is working on "only one plan" to keep Greece in eurozone. 11.16 Luke Johnson, chairman of Risk Capital Partners, has told the Times Summit that successful businesses had to believe in their ability to grow and overcome the hardships of a recession. "If you come to a state where you do not believe in growth and prosperity any more then that is embracing decline," he said. 11.07 UK auctions £4.75bn of five-year gilts. Average interest rate 0.927pc. Covered 1.28 times. 11.05 Austrian Finance Minister Maria Fekter says there are no signs Italy will apply to tap EU bailout funds. Adds that Italy will be helped if there is a request. Meanwhile, 70pc of Italians say the euro has brought more disadvantages than advantages, according to an ISPO poll. 10.40 Fitch: UK, France and US AAA ratings under pressure. 10.38 French Finance Minister Pierre Moscovici believes an aid package of up to €100bn for Spain's banks is just the first step towards a banking union in the eurozone. What we did for Spain was a convincing step forward but we must go further still. It is the moment where Europeans must define the framework for definitively consolidating the euro in political, budgetary and social terms. 10.35 An EU banking union proposed by EU Commission chief Jose Manuel Barroso is a good idea but should not be a "permanent income transfer union," Finnish Prime Minister Jyrki Katainen has said. We must be ready to develop this union and not to prevent its development. But we have our own starting points. It cannot become a permanent income transfer union in which the north is always paying the south," Katainen told Finnish financial daily Kauppalehti. 10.31 British airports operator BAA said the eurozone crisis dented traffic numbers from UK airports to Greece, Spain and other countries suffering worsening economic conditions. The owner of London Heathrow - Europe's busiest airport - said passenger numbers between Heathrow and Greece dropped 11.3pc in May compared with the same month a year ago, with numbers to and from Italy falling 9.2pc, Portugal 11.4pc and Spain 2.5pc. 10.28 International Swaps and Derivatives Association: "It would appear that the Spanish proposal would not trigger a credit event related to subordination." 10.24 Nicholas Spiro, managing director of Spiro Sovereign Strategy, has commented on the rising bond yields of Spain and Italy this morning: Spanish and Italian benchmark yields are moving in lockstep - so far both up 7bps to 10bps this morning. While the yield gap between the Spanish 10-year and its Italian equivalent was 80bps as recently as June 1, it is now roughly 50bp. Italian bonds are relinquishing their large gains in January and February. We're witnessing the strongest reversal of the post-LTRO rally in Italian debt as a result of contagion from Spain. There is a complete lack of differentiation between the Spanish and Italian credit stories. Country-specific conditions count for very little in the eyes of investors. This is contagion with a vengeance and bodes ill for Thursday's Italian bond auction. 10.14 Greece has sold €1.625bn six-month treasury bills at a yield of 4.73pc (previous 4.69pc). Bid-to-cover 2.14 (previous 2.6). 10.12 Fitch has said Italy is unlikely to need a bailout as the euro area's third-largest economy is in a better state than Spain. Managing director Ed Parker said: Italy is much closer to getting to a sustainable macro-economic position. It is now running a pretty small budget deficit, has a much lower current account deficit, doesn't have these problems in the banking sector. [Still], Italy does have high levels of government debt so there is very little headroom there to absorb any further negative shocks. It is very dependent on the interest rate at which it can borrow, which is high, higher than its growth rate, and so it is in this situation where the market interest rate has self-fulfilling impacts on Italy's credit worthiness. 10.00 Lord Mandelson is at the Times' annual summit. He has condemned the Coalition's abolition of Regional Development Agencies, the quangos which oversaw regional investment in Britain, as "petty and mindless economic vandalism." The former EU Trade Commissioner said that one of the key problems for business is that the Government doesn't think sufficiently long term. The problem we have, both in government and business in this country, is financially we just think and act too short-term. He said there was a pressure for "constant quarterly reports" by CEOs justifying their decisions. He added that banks and financial markets often took "too short-term-a-view" to the detriment of small and medium-sized businesses requiring investment. 09.37 Nouriel Roubini has told German newspaper Bild that Germany needs the euro to survive: Without the euro, Germany would be compared with the US or China is an economic and a political dwarf. As an export nation, Germany needs the euro and European countries as trading partners. Therefore: swim together or sink together. Bild: Is not it better to save than to flood the market with money? The savings madness must stop. Governments need to reduce taxes and increase wages. Europe needs growth. The German government should give every German household a €1,000 travel voucher. This may be spent only on holiday in the crisis countries. This will boost the local economy. In addition, everyone should get a tax bonus. UK factory output in April fell 0.7pc. Analysts expected a 0.1pc fall. Sterling weakens, FTSE 100 falls. 09.25 Spanish 10-year bond yields pass 6.6pc - the highest level since November 30, 2011. Italian yields are at 6.166pc. FTSE 100 flat 09.21 Back to Cable at the Times Summit: There are some good things happening in the banking sector and I think we need to highlight them. There are some new banks emerging that operate on a different model. [He highlights Handelsbank and Virgin, Richard Branson's bank which has taken over Northern Rock, as examples of good practice] There are some banks that were not touched radically by the crisis. Established banks, which made a mess of things, [are learning from their mistakes]. 09.18 Japanese ratings agency R&I (not one of the big three) has cut Spain from A to BBB+. S&P and Moody's still rank the country one notch above Russia. Can that last? 09.12 EU Commissioner for Economic Affairs, Olli Rehn, has said European leaders will discuss financial and fiscal union and growth compact at June Summit. Adds that quick approval of "two-pack" fiscal rules is needed. Rehn says any risk-sharing agreement needs to prevent anyone fom having the ability for a free ride. 09.06 Paul Mason, Newsnight's economics editor: 08.54 Ilya Spivak, currency strategist at DailyFX, has commented on this morning's market moves: European shares are probing gently higher in early trade as market-wide risk sentiment trends cautiously return to a neutral setting after Monday's seesaw volatility to await the emergence of the next catalyst for price action. S&P 500 stock index futures are pointing higher, hinting more of the same as Wall Street comes online. The bi-annual ECB Financial Stability Review looks to be the most significant bit of event risk on the economic calendar. While traders are unlikely to be particularly surprised by the risks that the central bank will probably identify, the intense focus on eurozone-linked instability can nonetheless make for a sharp reaction from price action in the absence of other major drivers. 08.42 Spanish 10-year bond yields pass 6.5pc. Debt insurance costs hit record high. Italian yield hits 6.1pc. 08.37 Business Secretary Vince Cable is speaking at the annual Times Summit. "Britain isn't likely to succeed economically without a strategic, long-term approach," he says. He adds that remaining open to competition is "absolutely essential" to a successful economy. He adds that protectionism produces losers. "This is a bit like inventing your own sport so you can be good at it," he says, citing the industrial inefficiency of the protectionist-run Soviet economy of days gone by. Cable says "so many of the businesses of the future will be founded by people born overseas." 08.31 Fitch: "third LTRO [from ECB] is increasingly likely." Bond yields are up and markets fell yesterday after the initial joy over the bailout wore off. 07.26 The IMF has said the yen is overvalued and the Bank of Japan should start stimulus measures. 07.07 The Times reports that the EU is working on plans for a federal economic union. 07.02 Asian stock markets have slid this morning as enthusiasm for a European plan to rescue Spain's teetering banks turned to scepticism.