Eurozone crisis live: Cyprus applies for EU bailout 5.16pm: It's all kicking off late this afternoon. Cyprus have officially applied for a bailout from the EU's EFSF/ESM fund. The government said: "The purpose of the required assistance is to contain the risks to the Cypriot economy, notably those arising from the negative spill over effects through its financial section, due to its large exposure in the Greek economy." It comes on the day Fitch cut the country's credit rating to junk status with a negative outlook Bloomberg's economics editor Linda Yueh gives us the numbers 5.09pm: Major reverse ferret by the Greek government over Rapanos's resignation (although he was technically never sworn in, so can he actually resign?). Less than two hours ago Government spokesman Simos Kedikoglou was telling Greek TV that the finance minister had been telling PM Samaras he had a "chronic situation" that he had learned to live with and that it would not effect his ability to do the demanding and stressful job. He left hospital this morning, but now, he's left the government. 4.57pm: Greece's finance minister Vassilis Rapanos has resigned, the PM's office has said. 4.52pm: Meanwhile, over in Portugal, PM Pedro Passos Coelho says the country will meet its budget goals required as part of its €78bn bailout and more austerity won't be needed. We have goals and objective to meet and we will meet them. It is very early to discuss new austerity measures However, his reassurances were met with some derision. Here Zerohedge sums up the mood on Twitter 4.43pm: European markets close on a turbulent day • FTSE 100 down 63 points, 1.1%, at 5451 • French CAC down 64 points, 2%, at 3027 • German DAX down 112 points, 1.8%, at 6152 But the big fallers are Spain and Italy Spanish IBEX 35 down 252 points, 3.7%, at 6624 • Italian FTSE MIB down 549 points, 4%, at 13114 4.13pm: The German finance ministry predicts the country's economy would contract by 10% in the first year after a potential euro collapse, according to an article in Der Spiegel. For you non-German speakers, the report quotes officials as saying Compared to such scenarios, a rescue, no matter how expensive it is, seems to be the lesser evil. They also predict unemployment could nearly double to 5m, something even Mrs Merkel would find difficult to explain to voters. 4.02pm: Thanks to those who pointed it out. Yes, Italian 10 year bonds were last above 6% two weeks ago, not January as suggested. Today, they have now fallen back below 6% to 5.98%. 3.51pm: Italian journalist Chiara Albanese has just tweeted this message from one of the largest Swiss banks 3.39pm: Ouch. We've not even made it to Thursday's EU meeting, but Italian 10 year bonds have gone above 6%. Up 19bps today. Spanish bonds up 27bps at 6.62%. 3.25pm: Over to Wall Street, with the Dow Jones opening down 166 points, 1.3%, at 12472, following in the footsteps of Europe where markets are also down 3.20pm: Thanks Julia. Over to Luxembourg: The EU has confirmed a formal embargo on Iranian oil starting on July 1. The original plans had been drafted in January but came under pressure from Greece who wanted an exemption or extension in the hopes of easing its economic problems. Athens asked for credit guarantees that would help it to buy crude elsewhere, but this was rejected. 2.41pm: I'm handing over to Simon Neville now. Thanks for all your great comments and see you soon. 1.37pm: Over to Ireland, where house prices have risen for the first time since 2007 in May - a sign the country's troubled housing market is starting to stabilise. House prices, which slumped 50% between their peak and trough, rose 0.2% in May from the previous month. They were down 15.3% in the year to May, but the rate of decline is easing. 1.33pm: Greece's new prime minister Antonis Samaras has been released from hospital, two days after undergoing eye surgery that will prevent him from travelling to the EU summit in Brussels at the end of this week. The newly appointed finance minister Vassilis Rapanos cannot make it either - he collapsed on Friday and is due to leave hospital tomorrow. The summit will be critical for Greece, coming just a week after its new coalition government was formed following months of political turmoil and two inconclusive national elections. Samaras underwent an operation to repair a detached retina on Saturday morning, and his doctors have said he will have to remain at home for several days to recover, although he can accept visits. 1.18pm: Time for a lunchtime round-up. European stock markets are down for a third day amid worries over Spain. FTSE 100 index - down 35 points at 547, a 0.6% fall Germany's Dax - down 108 points at 6154, a 1.7% drop France's CAC - down 58 points at 3032, a 1.9% decline Spain's Ibex - down 165 points at 6711, a 2.4% fall Italy's FTSE MiB - down 359 points at 13303, a 2.6% drop On bond markets, Spanish and Italian yields are moving higher again. The Spanish ten-year is up 18 basis points at 6.537% while the Italian yield has climbed 12 bps to 5.928%. The euro has hit a near two-week low of $1.24713. 1.02pm: Rating agency Moody's is poised to downgrade nearly all Spanish banks later today, according to reports from the country. Spanish financial daily Expansion believe there will be downgrades of two to three notches most likely after Wall Street closes - although it could be earlier. It would follow the downgrade of Spain's sovereign rating by three notches earlier this month. Moody's, you may remember, downgraded 16 banks worldwide last week, including RBS, HSBC, Lloyds and Barclays, but with little impact. 12.43pm: One winner in the current crisis appears to be Russia's biggest lender Sberbank. Deputy Chairman Andrey Donskikh told Reuters: We are seeing loan requests from abroad, which is quite unusual for Sberbank, as the European financial system is not showing very positive signals A bit of an understatement perhaps? The bank recently bought Turkish lender Denizbank for $3.5bn and Austrian bank VBI's eastern europe arm for $630m, but Donskikh says the bank has no plans to snap up any Greek or Spanish institutions. 12.32pm: He's coming out! Greek finance minister, Vassilis Rapanos (who has still not been officially sworn in), will leave hospital tomorrow, according to an official at the Hygeia Hospital. The official said: "Mr Rapanos had a gastroscopy and colonoscopy, which showed everything is completely normal." However, following his collapse on Friday, Rapanos is still unlikely to make the European summit starting on Thursday. 11.28am: Vincent Forest, economist at the Economist Intelligence Unit, has sent his thoughts on the Spanish request for banking aid: Although no document has been signed yet, it is now official that Spain will request aid from the euro zone institutions to shore up its banking sectors. Many details are already known, such as the necessity for the funds to be channelled through the Fund for Orderly Bank Restructuring, also known as FROB. This implies that, ultimately, the burden and risks associated with helping the Spanish banking sector will be shouldered by the Spanish government. Whatever the amount requested, it will add up to the already rising public debt. This bail out will come with less strings attached than the ones received by Greece, Portugal and Ireland. The conditions attached to the deal will apply only on the Spanish banking sectors, whereas the other countries had to accept an almost complete takeover of public finances. Such conditions would have cast even more serious doubts on the Spanish finances, resulting in an escalation of the crisis that the euro zone could not afford. Furthermore, given the strong commitment by M. Rajoy's government to fiscal discipline, the need for fiscal monitoring was less prevalent. Spain has therefore so far been able to retain national sovereignty, at least in the eyes of the general public. The origin, and especially the amount of the bailout will be of prime importance. It is essential that the loan provided exceeds by a certain margin the estimated capital requirements for the banks. Anything too far from the announced €100bn could fail to reassure investors, and create further volatility and instability. The biggest problem associated to this bail out is that it is merely a reshuffling of debt in Spain, therefore tackling more the liquidity crisis than the solvency crisis that is getting more acute every week. Further developments at the euro zone level are essential to solve Spain's problems, and will be discussed during the next summit on Thursday and Friday. 11.23am: The Spanish banking bailout - which Spain pointedly refuses to call a 'bailout' - is likely to be concluded in a matter of weeks. EU economic and monetary affairs commissioner Olli Rehn said this morning, in response to Spain's formal request for aid of up to €100bn: I am confident that we can conclude an agreement on the memorandum of understanding in a matter of weeks, so that we can proceed with the restructuring effort. The policy conditionality of the financial assistance, in the form of an EFSF/ESM loan, will be focused on specific reforms targeting the financial sector, including restructuring plans which must fully comply with EU state aid rules. Eurozone finance ministers gathered in Luxembourg last Thursday said an agreement with Spain should be ready and signed by their next meeting on 9 July. 11.11am: Chances are you've never heard of Maria Dolores de Cospedal. She is president of Castilla-La Mancha and inherited the biggest deficit of Spain's 17 regional governments - which she is determined to tackle ruthlessly. Read more in the Wall Street Journal here - 'A Spanish Leader Emerges as a Crusader for Austerity'. 10.51am: Following this morning's request by Spain for a rescue package for its banks which could total up to €100bn, Open Europe has published a new briefing looking at the funding needs of Spanish banks and the Spanish state. The think tank argues that, taking into account that Spanish house prices may drop another 35%, the country's banking sector could need an immediate €110bn capital injection to withstand potential losses - substantially above the recent official estimates. Without substantial banking reform and an upturn in the state of the Spanish economy this amount could increase further. Open Europe estimates that total exposure of EU countries to the Spanish economy is around €913bn. Open Europe's head of economic research Raoul Ruparel says: Funding for the Spanish banking sector is an incredibly fluid target and could go well beyond €100bn if the situation in the Spanish and eurozone economy continues to deteriorate. Though it comes with merits, if not carefully managed and subject to the right conditions, this package could merely serve to deepen the dangerous loop between Spanish banks and government without offering a clear solution to the crisis. In turn, if more pressure is piled on Spanish banks and therefore government debt, it could force Spain into a full eurozone bailout. With Spain facing funding costs of €548bn over the next three years, the eurozone's bailout funds are not equipped to handle a Spanish rescue. To avoid such a scenario, the current bank bailout plan just has to come with the right conditions - including losses for bank bondholders and bank wind-downs. Everyone agrees that the IMF estimates of €40bn for Spanish bank recapitalisation look too low. Open Europe estimates that the banking sector needs between €90bn and €110bn, meaning even the €100bn rescue package currently being discussed may not be enough. The amount needed could further increase if banks struggle to raise provisions against losses on top of their capital requirements. The external stress tests announced last week - which concluded that Spain's banks need €62bn - are equally too low given that they worked from current data, which may be insufficient or incorrect, the think tank reckons. It expects that the rescue package currently on the table, along with higher borrowing costs, could increase Spanish debt to 94% of GDP in 2013 and 112% in 2015 (with only slightly lower growth than expected). 10.45am: Fitch has cut Cyprus' credit rating to junk status - to 'BB+' from 'BBB-', with a negative outlook. It's down to the island's banks. Here is a bit from the statement: The downgrade of Cyprus's sovereign ratings reflects a material increase in the amount of capital Fitch assumes the Cypriot banks will require compared to its previous estimate at the time of the last formal review of Cyprus's sovereign ratings in January 2012. This is principally due to Greek corporate and households exposures of the largest three banks, Bank of Cyprus, Cyprus Popular Bank (CPB) and Hellenic Bank and to a lesser degree the expected deterioration in their domestic asset quality. 10.27am: As mentioned earlier, the Greek government has been thrown into disarray as to who should represent the crisis-hit country at the crucial two-day EU summit that begins in Brussels on Thursday. Helena Smith in Athens writes: Senior sources say the leaders of the coalition's two junior partners - the Socialist Pasok and small Democratic Left - may well attend in addition to a four-strong team lead by the new foreign minister. "It looks very likely that [Pasok leader] Evangelos Venizelos will attend as he will be anyway for a meeting of the European Socialist parties," said one source. Venizelos, who was finance minister when the €130bn rescue package was agreed, has called renegotiation of the deal a "national priority" with Athens announcing a list of steps to soften the impact of accord over the weekend. These unexpected illnesses couldn't come at a worse time. We need the strongest team possible to revise the memorandum," said another government source. The heat is already on. Leading EU figures, starting with the Germany finance minister Wolfgang Schäuble, have announced that Greece is way off -track in its reform program. At the very least, Greek officials say they want to extend the timeframe in which the country is allowed to meet fiscal targets so that spending cuts and structural reforms can be relaxed. Athens wants another two years, taking the program through to 2016. EU partners are already saying the extension will be costly and likely amount to creditors being forced to cough up as much as €20bn in extra funds. Postponement of an inspection tour by Troika monitors - until early July - exacerbated the sense in Athens today that economic recovery of the eurozone's weakest link is off course and likely to remain so for some time yet. On the basis of their findings, Troika officials from the EU, ECB and IMF will decide whether Greece is deserving of its next injection of cash. Public coffers are set to dry up completely by mid-July. 10.23am: Our man in Madrid, Giles Tremlett, says about Spain's formal request for banking aid: Spain's bland, formal letter requesting aid of up to €100bn for its banks fits perfectly in what seems to be a Spanish strategy of dragging the bailout process out as long as possible. Mariano Rajoy's government refuses to even call this a bailout and may muddy the waters further by avoiding ever giving a definitive, overall sum of how much money it wants. El Pais suggests today that it will dip into the €100bn credit line bit by bit, depending on the needs of individual banks - but figures for some of their needs will not be available until September. Both the government and the Bank of Spain have repeatedly said that the money is not needed urgently. Spain still believes - or it did on Friday, according to finance minister Luis de Guindos - that it might be able to get the European rescue funds to give money directly to Spanish banks, without it counting as national debt. By stretching the whole process out as long as possible, while avoiding detailed explanations of exactly what is needed and when, there is a chance that clear rules might eventually be introduced to allow this - or so Madrid seems to think. Germany disagrees and the risk is that other eurogroup countries may become inreasingly frustrated with prime minister Mariano Rajoy, especially as his government publicly insists that it wants to clear the bank business up as soon as possible. 9.37am: More on the Spanish aid request. The country has requested aid of up to €100bn for its banks. Spain's economy minister Luis de Guindos wrote in a letter to eurogroup chairman Jean-Claude Juncker that the final amount would be determined at a later stage, but should be enough to cover all banks' needs plus an additional security buffer. An independent report put the cost of bailing out Spain's banks at €62bn last week. My colleague Jo Moulds has provided a speedy translation. Re the amount, de Guindos requested "an amount sufficient to cover the capital requirements, plus a margin of additional security, up to a maximum of €100bn." The Spanish authorities will offer all their support in evaluating the eligibility criteria, the definition of financial conditionality, the monitoring of the implementation of measures, and the definition of the contracts for financial aid, with the aim of finalising the memorandum of understanding before July 9, so it can be discussed at the next eurogroup. 9.34am: News in from Athens where our correspondent Helena Smith says although officials are putting on a brave face the inability of the prime minister and his finance minister to perform their duties is causing ructions. There is even speculation that newly appointed finance minister Vasillis Rapanos, who is still in hospital, may have to turn down the job. Greek media are full of it this morning: the sudden illness of Antonis Samaras and his finance minister Vasillis Rapanos is "disharmonising" the government. There is mounting speculation that before he is even formally sworn in, the highly regarded Rapanos may be forced to turn down the job of finance minister because of frail health. "It will be decided in the coming days whether he will stay on in the role," Flash radio announced. The 65-year-old technocrat, the head of the National Bank of Greece, the country's biggest lender until last week was rushed to hospital after suddenly collapsing on Friday. It is unsure when he will be released although doctors say it "could be tomorrow." The Canadian-trained economist who has long battled health problems spent the weekend undergoing a battery of tests after complaining of acute abdominal pain and dizziness. Noone is denying that the post of Greek finance minister is possibly the worst job on the continent of Europe. With the economy shrinking for a fifth straight year, with a record 1.2 million Greeks out of work and the easing of Greece's latest EU-IMF sponsored bailout agreement now seen as vital if the debt-choked country is to get out of its economic death spiral, the workload, both at home and abroad, could not be greater. 9.28am: Lee McDarby of Investec looks ahead to the EU summit: It looks like we are heading for another week focused very much on the eurozone. Germany's chancellor Merkel, France's president Hollande, Italy's prime minister Monti and Spanish prime minister Rajoy met as planned in Rome on Friday. All sides appear to be converging towards the creation of some kind of growth package worth in the region of €130bn, or 1% of EU GDP. However it should be noted that so far there is no indication for now as to how this programme will be funded. Hollande said that commonly issued Eurozone bonds will be needed but that it shouldn't take 10 years to create these - a remark that seems to suggest progress on common issuance at the upcoming summit seems very unlikely. Overall, the Summit should move leaders a few steps further in the right direction but hopes of anything more are likely to be met with disappointment. 9.25am: Spain has formally requested European aid for its banks, Reuters is reporting - and it looks like it has asked for a blank cheque. The news agency quotes an economy ministry spokeswoman as saying that the country hasn't asked for a specific number. 9.20am: Greek journalist Efthimia Efthimiou has just tweeted that Greece's Socialist leader Evangelos Venizelos and Democratic left leader Fotis Kouvelis are due to meet this afternoon, perhaps to discuss whether to attend the EU summit at the end of the week. 8.47am: Billionaire investor George Soros has once again turned up the pressure on Germany, saying it needs to step up to the plate to save the eurozone. He has blamed Angela Merkel for the crisis in the past. More here, from my colleague Josephine Moulds. 8.25am: And @zerohedge tweets: 8.22am: Eusebio Garre, banking and capital markets professional in Frankfurt, tweets (@xgarre): 8.18am: This tweet from the ECB last night, congratulating the four winning teams who remain in Euro 2012, has raised some eyebrows: 8.11am: European stock markets have opened slighty lower, for a third day: The FTSE 100 index in London is down nearly 20 points, or 0.4%, at 5495. Germany's Dax has lost 0.7%, France's CAC has shed 0.6%, Spain's Ibex is down 0.4% and Italy's FTSE MiB has edged 0.2% lower. On bond markets, the Spanish 10-year government yield is up 7 basis points at 6.423% while the Italian equivalent has climbed 4 bps to 5.856%. 8.01am: The Bank of England needs to pump at least another £50bn into Britain's "stalled" economy, says MPC member David Miles. He warns in an interview with the Financial Times that only a "substantial" third round of QE will kickstart recovery. He sees the Bank's new liquidity support for banks under the ECTR as a "complement" to QE rather than a substitute, rejecting the view that the MPC "has run out of effective levers." He also explicitly rejects the argument that it is better to wait and see how effective the new liquidity and funding measures are before acting. Finally, Miles reckons the economy's recent unexpected weakness can't be attributed to the fiscal austerity measures, instead blaming commodity price increases and, more recently, elevated bank funding costs. Chris Crowe and Blerina Uruci at Barclays Capital say: Mr Miles has been one of the most consistently dovish members of the MPC, voting for additional easing at the June policy meeting along with three other members including Sir Mervyn King. His comments are therefore unsurprising. Nevertheless, they highlight the range of views on the MPC on the need for further easing, a question complicated by the growing range of policy tools available to policymakers given the potential for complimentarity and substitutability between the different measures. 7.56am: Looks like the GfK confidence number for Germany has been postponed until tomorrow. 7.51am: A light day for data, with new home sales from the US and GfK consumer confidence figures from Germany. Gary Jenkins of Swordfish Research has sent us his morning musings: So we commence yet another week that could determine the future of the eurozone with the big event being of course the summit that will take place on Thursday and Friday. However the most likely outcome is that the summit will end with the now normal comments about the unstinting determination to keep the eurozone together, some small moves towards putting a growth agenda and other various policies that are unlikely to make any significant difference in the medium term. To be fair it is difficult to agree any substantive measures when there is such a fundamental difference regarding the way forward. At the heart of the matter is Germany's refusal to contemplate mutualisation of debt without traditional sovereignty decisions being removed from member states and even this after some form of national referendums to enable any such move to have some legitimacy. If I was a German politician I guess that would be my approach too. Meanwhile the likes of Spain and Italy would prefer some form of joint borrowing to allow their own borrowing costs to be reduced and indeed ensure that they can borrow. The likelihood then is that the Eurozone will have to continue with its policy of "muddle through, and hope for the best." 7.09am: Good morning and welcome back to our rolling coverage of the eurozone crisis and world economy. Greece got knocked out of the Euro on Friday by Germany 4-2 in the quarter finals. England followed suit last night, yielding to Italy in a penalty shootout. That means Germany will face Italy on Thursday, while the night before the other two remaining teams Spain and Portugal battle it out for a place in the final. The main event this week is the EU summit on Thursday and Friday. Today, Spain is expected to formally apply for its long awaited banking bailout. An independent report from consultants Oliver Wyman suggested lat week that Spanish banks only need €62bn - compared with the €100bn approved by the EU. However, Michael Hewson, senior market analyst at CMC Markets UK, notes: Given that economic activity in Spain remains muted, with rising unemployment and non- performing loans at a 20 year high, it seems likely that this so called adverse €62bn figure could well rise rapidly. In any case this lower than expected figure caused Spanish bond yields to slide back from their highest levels of the week but they still remain eye-wateringly high. Furthermore uncertainty remains as to how the bailout will be applied and under what conditions, due to disagreements amongst EU leaders as to how the Spanish bank sector should be restructured. Today's meeting of ECB president Mario Draghi and French president François Hollande in Paris could turn out to be a short one, with the latter asking the central bank president to ease monetary policy and restart bond purchases under the Securities Markets Programme, while Draghi is likely to ask the French President to stop dragging his feet and work on a fiscal and banking union. Turning to Greece, the troika of the IMF, ECB and EU were due in Athens today to assess how far Greece has fallen behind with its austerity proramme due to the elections. But their visit has been postponed after both the new prime minister Antonis Samaras and the finance minister Vassilis Rapanos were taken ill at the end of last week. Samaras is recovering from an emergency eye operation while Rapanos was rushed to hospital after fainting on his first day, hours before he was due to be sworn in.