Debt crisis: as it happened May 25, 2012 Spanish banks have an estimated €184bn of what the Bank of Spain describes as "problematic" real estate-linked assets. The funds will be in addition to the €4.5bn already injected into the bank, bringing the total cost for the government to €23.5bn. Bankia has officially confirmed that it has asked for €19bn in state aid. 18.40 The ratings of Banco Financiero, Banca Civica, Banco Popular, and Bankinter were also cut. Banco Financiero and Banca Civica are already rated below investment grade by S&P. Banco Popular and Bankinter were cut to junk today. 18.20 The bad news just keeps on coming. Standard & Poor's, the rating agency, has cut Bankia's long-term credit rating to "junk." The bank was cut one notch to "BB+," from "BBB-." In a statement, S&P said: The downgrades reflect our revision of Bankia's stand-alone credit profile (SACP) to 'b+' from 'bb+', mitigated by our expectation that the bank will likely receive capital support from the Spanish government We assess Bankia's business position as "adequate." Created following the merger of seven former savings banks, Bankia has a leading market position in the Spanish banking system. It ranks as the largest deposit taker in the country and the second-largest lender, controlling market shares of about 11.5% of the system's loans and deposits. Bankia holds particularly dominant business positions in some wealthy economic areas (Madrid and the central region, Levante, the Canary Islands, and Rioja). We believe, however, that the integration process is still in its early stages and that significant implementation risks remain. The recent change at the top management level adds further uncertainties on the future strategic direction of the bank. 18.08 Back to Bankia, which has reportedly asked the government in Spain for an injection of €19bn, according to a source quoted by Reuters. 18.00 Jeremy Warner asks "what would happen if Britain had joined the euro?" in his latest blog post. His conclusion? We'd be in a bit of a pickle: If Britain had joined the euro, it would by now have broken the single currency beyond redemption, for it is impossible to imagine a major advanced economy tolerating the sort of nonsense which is being imposed on the highly indebted nations of the eurozone periphery. The counter factual can never be proved one way or the other, but if the UK had joined the euro it is highly likely that it would have had an even bigger boom in the lead up to the crisis. The bust would have been correspondingly bigger as well, and in dire need of both devaluation and the printing presses of a sovereign central bank, the UK would by now have quit the single currency and in the process brought the whole enterprise to its knees. 17.35 Spain's banking woes may have sent stock markets tumbling in recent weeks, but ordinary Spaniards have been expressing their feelings over the Bankia bail-out by taking part in flashmobs inside bank branches: 17.30 Angus Campbell at Capital Spreads comments on today's market movers: The battle between bulls and bears has been rather evenly matched with the FTSE starting the session in positive territory only to give back its gains and fall into the red before doing another 180 degree turn later in the afternoon to get back into the black. At least for now we've seen a week of overall gains for equity markets and the desperate panic selling has abated. Investors have been encouraged by the conviction shown by Italian leader Mario Monti who made it clear that he is committed to the introduction of Eurobonds and will do everything he can to ensure they are introduced. For now this seems to be all that the markets want to hear and it is helping sentiment for the week finish on a more positive note. 17.04 The FTSE 100 in London has closed flat, at 5,351.53, while the CAC 40 in Paris has finished up 0.32pc at 3,047.94 and Frankfurt's DAX 30 has closed up 0.4pc, at 6,339.94. Spain's IBEX 35 index, which fell by as much as 1.2pc earlier in the day, edged back into the black, ending the day up 0.13pc, at 6,543.00. 16.41 Following a brief sell-off, stock markets are set to end the day flat. The pain in Spain was offset by upbeat survey data across the pond in the US, where consumer confidence climbed to the highest level since October 2007. The University of Michigan/Reuters index of consumer sentiment rose to 79.3 in May from 76.4 the prior month. However, this is still below the average of 89 that was seen during the five years before the 2008 financial crisis. Commenting on the figures, Erik Johnson at IHS Global Insight, said: Gas prices have fallen, and that's outweighing the fact that the labour market has been of some concern We see consumer spending holding up. 16.25 Nicholas Spiro, head of Spiro Sovereign Strategy, comments on Catalonia's bail-out request: Catalonia is Spain's "Italy." It's the biggest and most indebted regional economy in Spain, and the one that will ultimately determine the success or failure of the Rajoy government's efforts to shore up Spain's public finances. Catalonia is the focal point for investor anxiety about Spanish sub-sovereign risk. Mr Mas's plea for financial support shows how dire Spain's regional financial woes have become and the extent to which devolution has become a fiscal liability. Catalonia's request for financial support from Madrid underscores the idiosyncratic risks in Spain which make it much more difficult for the central government to enforce fiscal discipline and implement economic reforms. Investors paid insufficient attention to sub-national risks in Spain at the beginning of the eurozone crisis. Since then, the markets have become more sensitive to the fiscal problems of the autonomous communities and now perceive them as the Achilles heel of Spanish fiscal policy. 15.36 Catalonia calls for "mutualisation" on regional Spanish debt. 15.34 Europe should renegotiate the terms of Greece's bailout as they were agreed on overly optimistic assumptions about economic growth, said Peter Bofinger, one of the five "wise men" who formally advise the German government on the economy. The terms for Greece should be renegotiated, they were made under the assumption of a much better cyclical development. That's very important for both sides, because if you have an uncontrolled exit of Greece, it could lead to a 'Lehman moment' for Europe and that is something that should be avoided at any price. Italy's Mario Monti, France's Francois Hollande, Germany's Angela Merkel and Spain's Mariano Rajoy are to hold a four-way summit in Rome after June 17 - the date of the Greek elections. 15.08 US markets are open. Dow down 0.2pc, S&P 500 up 0.1pc, Nasdaq flat. 15.05 Germany's opposition Social Democrats has scaled back its support for proposals to ease weaker eurozone states' financing costs, saying the common bonds championed by France were not a near-term option for tackling Europe's debt crisis. Eurobonds are something that for legal reasons in Germany cannot be introduced overnight. US consumer confidence rises to 79.3 in May from preliminary 77.8 (consensus 77.8). Now at highest level in four years. 14.55 Now it's getting serious - Moody's has lowered Greek yoghurt maker Fage's outlook to negative. 14.51 Refinancing needs of Spanish regions, put together by my colleague Szu Ping Chan: 14.43 Markets update: 14.28 French banks are drawing up Greek exit contigency plans, according to Reuters. 14.19 Euro falls below $1.25 (lowest since July 2010). IBEX market dropping, now down 1.1pc. Spanish bond yields rise to 6.245pc. All this after Catalonia asked Spanish government for bailout. 14.16 Kenneth Rogoff, Professor of Economics at Harvard University: "They are playing Russian roulette in Europe and I'm not sure how many bullets are in the gun." 14.13 US reiterates that the Chinese currency is "significantly undervalued." 14.00 Catalonia's annual interest payments have doubled in the past two years to €2bn. 13.56 Greece exit from the EMU is imminent, the bank of Tokyo Mitsubishi-UFJ has said in note. It said the market is filled with rumors that a "planned departure" will take place over the weekend of June 2 and 3. 13.45 Catalonia (top right on the map below) has €13bn in debt to refinance this year. It is the wealthiest region in Spain. The president of Catalan has said his region needs help from the Spanish government. It is running out of debt and financing options. Artur Mas: "We don't care how they do it, but we need to make payments at the end of the month. Your economy can't recover if you can't pay your bills. Spanish bond yields have jumped on that news. Now at 6.222. 13.16 Bank of England policymaker Martin Weale is sure the UK economy can withstand withdrawal of Greece from the eurozone but it could be a source of "disturbance." He adds that the eurozone is very much still behind UK economy's weakness. 13.13 Juergen Fitschen, Deutsche Bank AG's co-chief executive: "Greece is a failed state." He adds that Greeks can't be blamed for transferring funds and the country "can't see light at the end of the tunnel." The figures to revive Spanish banks are "staggering." 12.31 German central bank head Jens Weidmann on eurobonds: You don't give your credit card to someone who can't keep their spending under control. 12.20 European Central Bank council member Panicos Demetriades has refused to rule out a bailout for Cyprus. 12.16 Most Germans are against the idea of eurobonds, which would pool eurozone debt to help fight the crisis, and are against Greece remaining in the euro, according to a poll. The survey for ZDF public television found that 79pc of those asked said they opposed the introduction of eurobonds, in line with the position of Chancellor Angela Merkel's government. Fourteen percent backed the tool, which is being spearheaded by new French President Francois Hollande but which Berlin argues would remove pressure for reform in spendthrift countries and also undermines market discipline. Germans have also become increasingly sceptical about Greece's membership of the eurozone, with 60pc against, while 31pc backed its continued use of the single currency, the poll showed. 12.05 Belgium's deputy prime minister, Didier Reyners: There is no organised discussion at the European level along the lines of: what do we do [if Greece leaves]. Now, if central banks and companies are not preparing for the scenario, that would be a grave professional error. 11.54 ECB Executive Board member Peter Praet (see 08.19) says the 17 countries that use the euro need an "urgent overhaul" of their banking and financial system to deal with the debt crisis. 11.49 International Financing Review has claimed that Spanish banks may need further long-term loans from the European Central Bank - citing bankers advising the lenders. "Liquidity is a big concern," said the head of Spain at one investment bank advising lenders. Some have money to get them through the summer, but by the autumn if we haven't seen additional measures then they could be in a very difficult situation. "The only way out is another bazooka," he added, adding that some banks will need further loans from the ECB and a possible injection of capital. 11.45 Time for an update on the markets: 11.39 The head of the global banking lobby that handled the private debt write-off for Greece has warned that if the country leaves the eurozone, the world economy would suffer badly. The head of the Institute of International Finance (IIF), Charles Dallara, also urged the European Union to set up a system to guarantee savers' deposits in banks. It is a mistake to think that an exit by Greece from the eurozone will not have a very serious effect on the European banks, on the ECB, on countries like Italy, Spain and Portugal due to contagion. 11.30 Briiliant cover of Bloomberg Businessweek's latest isue: 11.11 More on that Bank of America/Merrill Lynch view on UK GDP (see 10.33): Our euro area economists have highlighted the possibility of a circa 4pc decline in Euro area GDP in the event of a Greek exit. Even with a moderate degree of fiscal loosening, we think that could threaten a circa 2pc decline in UK GDP. However, the BoE would endeavour to support the economy with looser monetary policy: QE could potentially be expanded by around another £200bn, in our view. Within the UK financial system, the BoE's £325bn of QE thus far has contributed significantly to the sharp increases in banks' liquidity in recent years. Moreover, in contrast with the ECB's LTROs, banks have not had to post collateral to access that liquidity. UK banks have only very small direct exposures to Greece, but they are heavily intertwined within the broader European banking system. However, partly as a result of the UK Government's prior investments, UK banks are judged to be relatively well capitalised internationally. 11.00 Van Rompuy: "I make again an appeal to leaders and citizens in Greece to let reason and self-interest prevail. We want Greece to remain in the euro area while respecting its commitments. 10.58 German government declines to comment on a Spanish aid request. 10.55 The spokesman for the German Finance Minister has said it is not problematic if the next Greek aid tranche is delayed beyond the end of June... Not for Germany, might be for Greece. 10.49 French bond yields have fallen to record lows recently. Ten-year's are currently at 2.471pc. Here's a graph by my colleague Matthew Sparkes: 10.47 European Council President Herman Van Rompuy in Slovenia today: 10.33 Bank of America: Greek exit would knock 2pc off UK GDP and spark £200bn more QE. 10.29 Michel Barnier, the EU's Internal Market Commissioner, says that crisis resolution measures will include a "bail in." Nope, we have no idea what a "bail in" is either. 10.19 A Twitter post by @Pawelmorski brilliantly sums up plans to solve the eurozone crisis in a Venn Diagram: 10.14 Spanish 10-year bond yields back above 6pc danger level. 10.08 Today, the EU is expected to file a complaint at the World Trade Organization challenging Argentina's import regulations. The move comes after President Cristina Kirchner nationalised Spanish energy company YPF last month. 10.02 Morgan Stanley has put forward its idea of what would happen if Greece left the euro: For a bigger version of this, click the right-hand-side of the main image at the top of this blog 09.52 Bundesbank has hit the nail on the head: "Main problem in eurozone is debt." Wow, what a revelation. Its president, and European Central Bank council member, Jens Weidmann believes the ECB has "reached the limit" of mandate with tools. He adds that the LTROs didn't solve the structural reasons for crisis, ad that the ECB took "considerable risks" with measures. Weidmann tells Le Monde that it's an "illusion" to think eurobonds will fix debt crisis. Declines to comment on if he is preparing Greek exit plan, but says aid to the debt-stricken country should stop if commitments are not respected. 09.49 Credit Suisse believes Greek exit fears are "overdone" and expects a compromise from IMF, Greek politicians and eurozone. 09.47 Following on from our top Bankia story, Spain is reportedly set to partially close 30 of its 47 state-run airports in an attempt to cut costs. The collapse of regional finances in the country is pushing the Prime Minister to reverse 35 years of devolution that saw public spending soar for projects in Valencia such as Formula One racing events and a new opera house. The EU predicted last week that Spain will miss deficit-reduction goals this year and in 2013. 09.44 Didier Reynders, Belgium's finance minister, has said Greece can't handle any more spending cuts. He adds that eurobonds require capital cities to give up control. 09.40 We are now hearing that Bankia will not disclose its recapitalisation plan until tomorrow... when markets are closed. 09.33 Italian PM Mario Monti: A united Europe is in Germany's interest... We'll have eurbonds if the euro area, and therefore Germany, will want them. 09.25 Bankia to hold board meeting at 15.30 (UK time), where it will reveal how much money it needs from government. Shares suspended today, after closing down 7.4pc on Thursday. 09.18 Denmark has trimmed its 2012 GDP growth forecast to 1.1pc from 1.2pc