Debt crisis: live - Daily Telegraph
19.25 Ben Bernanke has said that the US Fed is willing to take further steps if necessary to promote growth and create jobs. Unemployment is still too high, and going down too slowly, he says.
19.17 The Fed, having announced the extension of Operation Twist, has now slashed its economic growth estimate for this year by a half point. GDP is now expected to grow by a maximum of 2.4pc by the end of the year, and the jobless rate will rise to as high as 8.2pc.
18.51 We have more from Angela Merkel now. She says it's "one of the options" that the EFSF or ESM start buying bonds, there are "no concrete plans".
There are no concrete plans that I know of but there is the possibility in the EFSF and the ESM to buy bonds on the secondary market, bound up of course always with conditions. But that is a purely theoretical comment about the contractual situation. This is not a subject for debate right now.
18.30 Angela Merkel has said that bond-buying by the EFSF/ESM is possible, but only "purely theoretically". It sounds like the plan could still encounter some resistance. Nonetheless, the glimmer of permission from Merkel is enough to boost markets.
18.21 US markets are now up for the most part, as the Fed extends Operation Twist - a plan to sell short-term debt and buy long-term, in the hope of bringing down interest rates.
18.07 Angela Merkel has called Greece's brand new prime minister Antonis Samaras to wish him "luck and success for the difficult work ahead of him", and to invite him to Berlin.
17.58 The yield on 30-year US debt - exactly the sort of thing likely to be snapped up as part of Operation Twist - fell dramatically in the minutes after the announcement by almost ten basis points. Brent crude was also down $2.67 on the news.
17.51 US stocks have taken a turn for the worse since the Federal Reserve announcement. Mark Martiak, senior wealth strategist at Premier/First Allied Securities, says:
I'm surprised markets have taken a slight turn downward, but markets don't feel good that there is extended liquidity. Pumping liquidity into the system concerns the market over time.
17.37 The US Fed has twisted again: its monetary stimulus plan, "Operation Twist" will be extended by $267bn in a bid to boost the economy as the central bank still sees weakness.
17.28 Spanish 10-year bond yields are coming down slightly today, currently sitting around 6.66pc. Dr Nicholas Spiro, managing director of Spiro Sovereign Strategy, says:
When a €100bn financial support package prompts a sharp spike in yields but rumours of bond-buying that proved ineffective in the past leads to the biggest one-day fall since December, it's clear that restoring confidence in Spain's bond market is going to prove devilishly difficult.
17.17 As we near the US Fed announcement, just a word more on Greece: Dr Michael Jacobides of London Business School says the country is in "septic shock":
The politics remain messy, the underlying structural issues persist, and Greece is in a contraction spiral that reduces its tax receipts and social security contributions. Greeks may have bought another summer in the euro and the eurozone may have bought time to better prepare for a potential Grexit.
Greece is currently in “septic shock” with consumption having nose-dived and investment having been halted due to the political and potential currency instability.
16.56 Finland, one of the few countries in the eurozone still clinging to a AAA rating, does not accept Mario Monti's proposal for the EFSF/ESM to directly buy government bonds. Although that's what they were created to do...
Prime Minister Jyrki Katainen said:
These are instruments created to secure liquidity for countries in trouble, and the funds are not sufficient for purchases made in the secondary markets.
The idea is expected to be discussed at a meeting of leaders in Rome on Friday.
16.39 European markets have come to a close for the day, boosted by the prospect of QE from the Bank of England and the US Federal Reserve. Angus Campbell, head of market analysis at Capital Spreads, says:
The FTSE has been boosted once again by the prospect of further stimulus from central banks across the globe as the latest minutes from the Bank of England all but confirmed we’ll see another round of QE next month from them. With the Governor Mervyn King being outvoted as revealed by the minutes today it’s almost a guarantee that he’ll get his own way next month. From the moment the BoE minutes were released buyers came into the market and pushed the FTSE back above the 5,600 level where we still remain going into the close. Also, this evening expectations are high for an extension of Operation Twist from the US’s Federal Reserve.
15.38 Greece has formed a new government, and attention looks likely to shift across the Atlantic this evening. The US markets have opened slightly lower ahead of the US Fed's policy announcement, due at 5.30pm London time. Two hours after that we'll also have fresh growth estimates which will give an indication of how healthy the rate of economic recovery is.
That's not to say that the Greece situation is resolved. Far from it, writes Richard Driver, analyst for Caxton FX:
In truth, the real work starts now as the government sets about renegotiating the terms of its bailout - this is the real source of market nerves. Merkel has sounded pretty tough on the bailout agreement issue but it’s pretty widely recognised that a bit of leeway needs to be granted.
One thing for sure, Greece is far from out of the woods yet and we fully expect the euro to suffer further declines in the months ahead.
15.31 Pictures of the swearing-in of Antonis Samaras are starting to emerge.
15.05 And a little bit more - Mr Samaras has spoken to the public, from Alex Spillius again:
Antonis Samaras emerges from his swearing in to ask for God’s help in running the country. According to one count, he is Greece’s 185th prime minister.
15.00 Alex Spillius has some colour from the swearing-in ceremony in Greece:
Antonis Samaras is being sworn in as prime minister by Archbishop Ieronymos, head of the Orthodox Church of Greece. It's official now; Greece will be governed. We hope.
14.59 Antonis Samaras has been sworn in as the new prime minister of Greece.
14.48 The US Fed is holding the second half of a meeting today to decide whether or not to release a new round of QE. We should hear by 5.30pm in London. Kathleen Brooks, research director for the UK and EMEA at Forex.com, has this to say:
As much as I would love to be a fly on the wall at the Fed meeting, I am not and due to this there is no point guessing what it will do. At this stage the odds are fairly balanced. The reason why it might do QE: the eurozone crisis is far from resolved, the labour market is showing signs of weakness, the markets have started to price in QE hence the rise in the euro, the SPX 500 etc. and the Fed doesn’t like disappointing the market. Thus, the Fed may choose to do more QE as a premptive measure in case the economy gets worse over the summer and the Eurozone crisis blows up (again).
However, the reasons for remaining on hold are equally compelling, if not more so in my view. Firstly, more QE is costly as the Fed would need to do at least $600bn worth of purchases of Treasuries, MBA’s or both to have an impact. Secondly, successive attempts at QE tend to have a diminishing effect on the market, hence the Fed would have to pledge to open-ended purchases to really have an impact. Thirdly, interest rates are already at record lows in the US.
14.10 Not everyone is won over by the new Greek government:
And others suggest that the second round of elections were a waste of time, ultimately, and that a government could/should have been formed last time.
13.54 Anticipation is mounting ahead of Antonis Samaras' arrival, Kathimerini tweets:
13.30 Greece looks to be squaring up for a battle of wills with its EU and IMF paymasters. Alex Spillius sends this from Athens:
13.27 Another flash from Reuters reports that conservative leader, Antonis Samaras, is to be sworn in as prime minister after meeting the president later on today.
13.08 Some more detail on the earlier move by the European Commission to play down ideas that eurozone resuce funding could be used to lower high borrowing costs for Spain and Italy via a bond buyback.
Reuters reports that Amadeu Altafaj, spokesman for the EU's eurozone commissioner Olli Rehn, said using the European Financial Stability Facility - or its successor, the incoming European Stability Mechanism - to tame runaway bond yields and spreads "could be useful to calm markets."
The idea, according to some reports from G20 talks in Mexico, is to use hundreds of billions of euros available in the EU financial firewall to buy debt directly from governments struggling to obtain competitive rates on money markets. This would force down the risk premium.
However, Altafaj told a regular Commission news conference that this would likely only work "for a certain time" and would not resolve root tensions. "It would be financial paracetamol," he said. "It could soothe tension, pain and malaise... but it does not heal the root causes, the structural problems of the economies of Italy, Spain and others.
12.47 A dispatch from the Telegraph's Alex Spillius. He writes:
Greek television reports that Antonis Samaras, New Democracy’s leader, would visit the president Karolas Papoulias at 4pm local time to inform him that he had succeeded in forming an administration. Looks like we have lift-off, or at least government, after two months of inaction.
12.43 Greece has apparently got a government and has also avoided an energy crisis, after a gas supplier, DEPA, secured a €100m loan to pay foreign suppliers.
But, in a stark sign of the struggles faced by Greeks living with the repercussions of rising unemployment and crippling social cuts, thousands have been queuing for food handouts in Athens.
12.32 A party official has told Reuters that Greek parties have agreed that National Bank Chairman, Vassilis Rapanos, will be finance minister
12.30 More from Venizelos: he says the key issue will be to form a bailout renegotiation team.
12.27 Breaking: Reuters flash reports that Evangelos Venizelos says Greece has a government.
He adds that the cabinet make-up of the new government will be discussed by Wednesday evening.
12.26 Football face-off: Angela Merkel is apparently due to attend Friday's Euro 2012 quarter-final with Greece in Gdansk, which will see the troubled country pitched against its northern paymaster.
Reuters reports that German and Greek players have sought to play down the importance of a game, but Greek media have relished the prospect of sending the German team home in front of Mrs Merkel, who is a deeply unpopular figure for the tough austerity she has imposed on the country in exchange for its bailout.
Berlin spokesman Georg Streiter said the chancellor had accepted an invitation from Polish Prime Minister Donald Tusk to attend the game in the Baltic coast city.
Pressed on whether Merkel would meet Antonis Samaras, who is working to form a new Greek government after his New Democracy party won elections at the weekend, Streiter joked: "Maybe in the halftime break."
12.20 While Greece sorts out its government, Nicholas Spiro at Spiro Strategy has cautioned that it is merely a "distraction from the deep-seated problems facing the country and the eurozone in the coming weeks and months":
If Greece itself is a sideshow, then the new government, provided it is formed, is of little consequence. Indeed there is a significant risk that a coalition comprised of figures from Greece's discredited establishment may even exacerbate matters.
The only "winner" in Sunday's election is Mr Tsipras. Not only has he won the argument that changing the terms of the bail-out agreement does not in itself equate to Greece's repudiation of its membership of the eurozone, he's now in the political driving seat as a popular leader of the opposition. Provided it is formed, the New Democracy-led cabinet will be a weak and distrusted administration which will have to drive a hard bargain with the eurozone if it wants to remain in office for longer than a few months.
12.09 It seems the Bank of England has seen a strong take-up for one of its new liquidity measures. The Bank’s new External Collateral Term Repo will see the central bank pump a minimum of £5bn every month into the banks in the form of six-months loans. Today, it was announced that the Bank had allotted the full £5bn.
The scheme allows banks to borrow central bank funds in return for lower-quality collateral than they would usually be able to use, including residential mortgage-backed securities, securitised credit card debt, student and consumer loans and some types of asset-backed commercial paper.
12.00 You can all breathe easy now. With anticipation mounting that the Bank of England could launch another round of QE, Britain's chief debt issuer has said that a further round of stimulus is unlikely to cause any disruption to the UK government bond market.
"More QE is unlikely to impact the smooth functioning of the gilt market," Robert Stheeman, chief executive of the Debt Management Office, told Reuters.
"At the moment, the market continues to grow - we continue to issue - and I see no signs that the liquidity of the market is such that would suggest that the BoE might have concerns," he said. "The market has proved remarkably resilient to the emergence of a single, very large investor."
But, he cautioned that an unruly outcome of the single currency zone's crisis could have a negative impact on some Gilt Edged Market Makers, the primary dealers through which Britain sells its debt.
11.47 That meeting between Antonis Samaras and Evangelos Venizelos is apparently underway. Stay tuned for any further developments on the creation of a coalition government in Greece.
Samaras, whose New Democracy party narrowly won Sunday's election, has a three-day mandate to form a government.
He earlier met the head of the Democratic Left party, which is said to back a coalition if a final agreement is reached, but will refuse to place senior politicians in the cabinet. The meeting with Pasok's leader, Venizelos, should hopefully wrap up a deal.
11.42 The Telegraph's Philip Aldrick and Robert Winnett have this tale on Robert Jenkins, a member of the Bank of England's Financial Policy Committee, warning that traders should prepare for a Lehman re-run:
Speaking at the Global Alternative Investment Management conference in Monaco, Mr Jenkins warned: “Those of you who traded asset backed securities in 2008 can testify to the speed with which liquidity can disappear. Yet despite these examples, many continue to assume that ... ‘liquidity’ is free and will be freely available.
“Short-selling bans in Europe and bond purchase penalties in Brazil are a foretaste of the future. I recommend that you send your best and your brightest to the library to research state intervention in the post war period. It could come in handy. For like clean air and water, market liquidity is no longer limitless and no longer free.”
11.30 According to Reuters, the European Union Commission has indicated that there is no formal request to relieve tension in the bond markets using bailout funds.
11.17 Labour leader Ed Milliband has voiced his opinions on the G20 summit, saying it appears to offer no progress for Europe and no global plan for jobs and growth. At a speech to the Which? Awards 2012 today, he will say:
We all know the great challenges facing the UK and global economies. Growth slowing. Rising borrowing costs in Europe. Unemployment high across the world. Squeezed living standards in the developed world, for year after year. And Britain, the only country in the G20 apart from Italy to be in a double dip recession.
You know them, the public knows them. Big challenges, needing a big response. This G20 summit should have marked a decisive shift towards jobs and growth, which is vital if we are to get deficits down. Unfortunately this has not happened because too many governments, our own included, seem to think more of the same is the answer.
The result is a summit that appears to offer no progress for Europe and no global plan for jobs and growth. It is a summit of division, when the world needs unity. And a summit of inaction when people, in Britain and across the world, are crying out for action.
11.05 Kathimerini, the Greek newspaper, has some further tweets on the political manoeuvrings in Greece:
10.56 The latest twist in Greece's attempts to form a coalition government: the leader of the Democratic Left has said that his party will give a vote of confidence in the new government. He has also said that his party wants the new government to gradually disengage from the bailout deal. His comments came after holding talks with the conservative chief, Antonis Samaras.
10.45 A quick round-up of the markets shows that they are indeed rather quiet. The FTSE 100 is up just 0.2pc to 5597, France's CAC is virtually flat at 3116 and Germany's DAX is up 0.2pc to 6375.
Spain and Italy's 10-year bond yields remain easier this morning, down 14 basis points and 9 basis points respectively to 6.8pc and 5.8pc.
10.42 Despite the Bank of England minutes, talk of a bailout and the unemployment figures, Chris Beauchamp, market analyst at IG Index, writes that it is a quiet day on the markets so far:
It’s been a quiet morning so far in London, with the FTSE barely changed, as hopes of Fed action look likely to keep traders in limbo for most of the day.
Investors tread carefully today, lest they are caught out this evening by a Fed statement that confounds expectations. As the global economy teeters on the brink, and the eurozone crisis festers away in the background, the hope for many is that Helicopter Ben and his band of policymakers at the Fed will unleash a new round of stimulus, or at the very least tweak the language of their statement to make it more accommodative.
With no real economic news of note to fixate upon this afternoon, we will be left twiddling our thumbs until 4.30pm (London time), when the Fed’s statement will emerge.
10.29 Analysts at Royal Bank of Scotland reckon that the "knife-edge" Bank of England vote means that QE is coming in July:
The MPC voted 5-4 against extending QE purchases at the June meeting, much closer than the expected 7-2 outturn. Mervyn King, Adam Posen and David Miles voted for a £50bn extension, Paul Fisher for £25bn. In response to this we bring forward our forecast for £50bn of QE from August to July. Unanimity prevailed on Bank Rate – and we continue to regard a cut as unlikely.
The shift is clearly being driven by the deterioration in financial market conditions: 'More significantly, however, the risks to UK and global activity from financial distress and political tension within the euro area had intensified again.' (Para. 26).
It is also clear from the Minutes that some of the five members voting for no change believe that further QE is likely to be required soon: 'On balance most members judged that some further economic stimulus was either warranted immediately or would probably become warranted' (Para. 27). Some residual concerns about inflation lingered (these will presumably have diminished following the May CPI data and the general deterioration in the demand outlook) and some members wanted to wait for election outcomes in Greece and France and the EU summit at the end of June before voting for more stimulus.
10.17 Figures from Switzerland show that investor confidence fell to the lowest in five months in June, sliding to -43.4. Switzerland's economy is expected to deteriorate as the euro crisis and the franc's appreciation over the past three years threaten the country's exports.
10.09 Back to the eurozone for a moment, Jens Weidmann, president of Germany's Bundesbank and a member of the European Central Bank governing council, has said that it is up to Greece to keep the bailout on track. He told a German magazine that Greece must bring its reform programme back on track if an assessment by the EU/IMF/ECB troika comes to the conclusion that it has fallen off the rails.
He added that the Greek election had not changed the fact that Greece needed to stick to its bailout programme to receive further financial aid. "If there are discrepancies [from the programme], we have to analyse the causes, but first of all it will be up to Greece to demonstrate that there is a way to repair it," Weidmann said.
According to Reuters, he added that the Bundesbank's opposition to the ECB's bond purchase programme was known and that he was also not in favour of issuing joint short term "eurobills".
10.02 Some Twitter reaction on this morning's Bank of England minutes, which revealed a 5-4 split on more QE:
09.54 Sterling fell briefly against the dollar and the euro on signs that the Bank of England policymakers are on the verge of another round of easing. The pound fell to a session low of $1.5651 after the minutes of the bank's meeting were released.
09.45 Commenting on the Bank of England minutes, Ian Williams, an economist and strategist at Peel Hunt, said:
That move next month [to increase QE] now looks an absolute certainty, given the inflation data we've had and everything else .. . We keep throwing money at the problem, but that doesn't mean it's going to fix them.
The impact of domestic monetary policy moves on UK equities is becoming less significant, [and] this was pretty much in line with expectations. Certainly the comments they've made since the meeting have been a big flashing green light.
09.40 Figures just out show that the number of Britons claiming unemployment benefit rose unexpectedly in May, climbing by 8,100 when analysts had forecast a fall of 3,000 on the month.
09.38 Although the Monetary Policy Committee voted 5-4 against restarting the gilt purchases they started in June, the minutes showed far stronger support for quantitative easing than many economists had expected, and there are expectations that there could be a majority for more QE as early as next month.
09.36 Bank of England minutes are out and show the bank is on the verge of approving another round of monetary stimulus, with Governor Mervyn King supporting an extra £50bn of gilt purchases.
09.32 Martin Wolf of the Financial Times has written on the eurozone's unhappy marriage - 'A bitter fallout from a hasty union' (£). Writing that non-eurozone leaders at the G20 "must feel like marriage counsellors trying to reconcile partners far too different in character and values to live happily together", he concludes:
I can envisage five outcomes: first, a happy marriage, on Germany’s terms, albeit after a painful period of adjustment; second, a miserable marriage, which endures because a break-up is too costly; third, a degree of mutual accommodation, in which the north becomes more southern and the south more northern; fourth, a partial break-up, with the remaining members moving into one of the three previous categories; and, finally, total break-up. What is certain is that Germany will not get the eurozone it wants easily or swiftly. If partial or total break-up is avoided, the period of difficulty will be long and painful. The crisis of the eurozone is likely to be a very long-running soap opera – if it does not end in tragedy.
09.07 Kathimerini English, a newspaper published in Athens, tweets on today's coalition wranglings:
09.03 Efforts to form a coalition government in Greece continue. The conservative New Democracy, which narrowly won Sunday's re-run election, is seeking an alliance with the socialists of Pasok and with Democratic Left. Evangelos Venizelos has said that an agreement could be reached by midday today.
New Democracy leader, Antonis Samaras, is scheduled to meet with Mr Venizelos at 10.00 and with the Democratic Left's Fotis Kouvelis an hour later. There are suggestions this morning that the Democratic Left has agreed to join the coalition, but will not join the cabinet.
08.45 There might be mutterings of a bailout, but the likes of LCH Clearnet are still playing it safe. Europe's biggest clearing house has raised the extra deposit it takes from clients to trade most Spanish government bonds amid mounting concerns that leaders are failing to tame the debt crisis.
Bloomberg reports that the margin needed for Spanish securities due in 10 years to 15 years will be increased to 14.7pc from 13.6pc.
An increase in the margin requirement reduces the amount of cash banks are able to borrow using the Spanish government bonds as collateral in so-called repurchase operations, dimming their appeal, and meaning holders need to commit more of the securities to get the same size of loans.
“The LCH margin increase is part and parcel of a process where every institution involved in a given trade tries to protect itself, thereby accelerating the speed with which Spanish bonds fall,” said Sebastien Galy, a senior foreign- exchange strategist at Societe Generale.
08.36 Equities across Europe are coming under pressure this morning, despite suggestions of a bailout for Spain and Italy and despite hopes that the Federal Reserve could unleash another round of stimulus measures. The latest two-day monetary policy-setting Federal Reserve Open Market Committee meeting concludes today, with a decision on interest rates and any possible further capital injections for the US economy due after the bell in London. Expectations are high that the US central bank will extend its bond-buying programme, dubbed "Operation Twist".
Andrew Taylor, market strategist at GFT Global, said:
With such strong expectations that the Fed will announce a measure of stimulation, the market may find itself caught 'Long and Wrong' should Chairman Bernanke decide not to live up to the markets wishes. The door is definitely open for the Disappointment Trade.
08.20 Commenting on the possibility of the bailout funds buying part of Spain and Italy's debt, Nicolas Doisy at Cheuvreux asked: "Eurobonds on their way at last? Let's keep our fingers crossed!" He added:
The key political take-away is that Germany is at last agreeing to show more "federal" solidarity, i.e. to partly underwrite the sovereign debt of Eurozone crisis countries. From a market perspective, if confirmed, this would preserve the ECB's independence and ring-fence Spain and Italy, by capping the long-term yields of both countries.
In the longer term, such a change of gear would amount to initiating the premise of a Eurobond, to the extent that it introduces some form of joint and several liability crucially involving Germany. This could open the way to the "Redemption Fund" meant to gradually take over excess debt of peripheral members of the Eurozone in particular.
All in all, this would be a way to keep Italy and Spain onboard Merkel's two-speed Eurozone by effectively tying them closer to the core Eurozone.
08.00 London markets are now open and trading slightly lower:
07.50 The bond markets are happier today, following the news that eurozone leaders will discuss using the bailout funds to buy government debt directly - although nothing has been agreed by Germany yet.
The yield on Spanish 10-year government bonds was 13 points lower at 6.829pc, after falling below 7pc yesterday, while Italy's bonds fell 10 basis points to 5.79pc.
07.40 Louise Armitstead has done a very good job of explaining how the bailout funds could be used to buy government debt, and the crucial change that would need to be agreed first:
Since the programme started in June 2010, the ECB had bought €210.5bn (£170bn) of bonds. But in recent weeks the bank has stopped the SMP, despite Spain's bonds yields tipping over the 7pc danger level and Italian bonds pushing over 6pc.
Experts said markets were unlikely to be convinced by the plan unless Germany agrees to some concessions, particularly giving the ESM a bank licence.
Raoul Ruparel, of Open Europe, said: "With a licence the ESM could borrow from the ECB and then buy bonds. But if it has to issue its own debt in the market before it can buy Spain's or Italy's then the process will be slow and difficult because the markets are already almost closed. It's hard to see how the plan will work without the ESM having a licence."
07.30 Here's a bit more detail on what was discussed last night at the G20 in terms of using the eurozone bailout funds to buy government debt directly in the market - a job previously only done by the ECB.
Francois Hollande, the French president, said that Italy had proposed using the eurozone's new permanent bailout fund to buy the debt of member states saddled with high borrowing costs and that this was an idea worth exploring.
"Italy has launched an idea which is worth looking at," he said.
The proposal will be discussed at a meeting in Rome on Friday by him, Chancellor Merkel, Spain's Mariano Rajoy and Italy's Mario Monti.
"We are looking for ways to use the ESM for this. At the moment it is just an idea, not a decision. It is part of the discussion," he said.
Mr Hollande said rates paid by Spain and Italy to borrow on debt markets were unacceptable. “We must show a much faster capacity for action,” he said.
Germany is reported to be willing to do more, but has not yet publicly indicated its support for the proposal.
07.17 Back in Europe, Spain and Italy are expected to be bailed-out in a £600bn deal. Robert Winnett reports:
Under the proposed deal, two European rescue funds – the £400billion (€500 billion) European Stability Mechanism (ESM) and the £200billion (€250 billion) European Financial Stability Facility (EFSF) – will buy bonds issued by European countries.
Previously, money in these funds — which has been provided by members of the single currency — has been used to bail out smaller European countries such as Greece, Portugal and Ireland. Governments in these countries were offered money directly in return for agreeing to austerity programmes.
Under the new plan, the money in these funds will not be given directly to governments but will instead be used to buy up debts on the financial markets.
07.05 ...while messieurs EC and EU, aka Jose Manuel Barroso, the head of the European Commission, and Herman Van Rompuy, the head of the European Council, said:
There was a focus on the situation in the Euro area in our discussions. G20 leaders recognised the value of the European project and of the EU's currency, the Euro. They welcomed the measures taken in Europe to stabilise our economies and our financial system and expressed support for our intention to move ahead with deeper economic and fiscal integration. This is an encouragement for the EU. A common currency needs more common policy. Our monetary Union needs to be completed by a more integrated economic union. Our partners have recognised that a strong, deeply integrated European Union is decisive for systemic global stability. This recognition mirrors the momentum which is now building in Europe. The EU is determined to show the irreversibility of the euro and of the European project.
07.07 Christine Lagarde, managing director of the IMF, said "the seeds of a pan-European recovery plan were planted" in Mexico...(even though they've already had two years to do so). She said:
We all are concerned about Europe, particularly the eurozone. In Los Cabos the seeds of a pan-European recovery plan were planted. This must be recognised. European leaders committed to take all measures necessary to safeguard the integrity and stability of the euro area and break the feedback loop between sovereigns and banks. Their intention to consider concrete steps towards a more integrated financial architecture is important, and I look forward to discussing this further when I visit Europe this week to finalize the IMF’s annual review of the euro area.
07.02 Another day, another summit. The leaders of the world's most powerful economies pledged to increase efforts to revive jobs and growth in the global economy yesterday, as euro area members vowed to:
...take all necessary policy measures to safeguard the integrity and stability of the area, improve the functioning of financial markets and break the feedback loop between sovereigns and banks.
You can read the full communiqué here.
Heads of the G20 leading economies pose for a family photo at the convention center in Los Cabos, Mexico, on Monday evening (Photo: AFP)
07.00 Good morning and welcome to our coverage of the European debt crisis.
Finance: Grinding to a halt - Financial Times
Last updated: June 19, 2012 9:53 pm
Key finance job goes to careercivil servant - Financial Times
June 20, 2012 7:28 pm
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EU Finance Ministers to Meet as Decisions on Spain, Greece Loom - 4-traders (press release)
--Euro-zone finance ministers set to consider changes to the senior creditor status of euro zone's new bailout fund
--New Greek government may get 1 billion euros in withheld funds as "goodwill" gesture, officials say
--Spain, Cyprus could formally request assistance from euro zone
--Finance ministers face difficult choices on Greek program changes
(Adds details on developments on Spain's expected formal request for financial assistance, plans for Greek economic reform, possibility of a financial-transaction tax.)
By Vanessa Mock
BRUSSELS--Spain could become the fourth euro-zone country to make a formal request for financial help from other members of the currency bloc during a two-day meeting of European finance ministers that begins Thursday.
The likely request, coming in the wake of the formation of a new Greek government and amid expectations that Cyprus will also ask for a bailout, is aimed at bolstering the capital of Spain's banks, many of which are struggling from losses caused by a collapsing real-estate market.
Ministers will also discuss ways to put Greece on the narrow path of economic reform while also dangling the promise of relaxing some of terms of its bailout in future, officials said.
European Union finance ministers could also decide whether to press ahead with a financial-transaction tax among a smaller group of nine member states.
The meeting in Luxembourg comes amid heightened expectations that the EU's bailout funds could soon be activated to take the heat off Spain, Italy and other debt-laden countries by intervening directly in bond markets, a move floated by Italian Premier Mario Monti to bring down borrowing costs.
"We are just thinking about what instruments might actually be useful to relieve the tension on the market and it seems to me only natural," a spokesman for the European Commission in Brussels said Wednesday.
Although ministers aren't expected to address this proposal explicitly, they could change the senior creditor status that would apply to the EU's new bailout fund, a move that would seek to reverse the negative market reaction to the euro zone's promise to rescue Spanish banks to the tune of up to 100 billion euros ($126 billion).
Under current rules, any aid provided to Spain by the European Stability Mechanism would enjoy preferred creditor status, an issue that could fuel fears by private investors that their rights would be subordinated to those of official lenders. People familiar with the matter Wednesday said ministers could signal that they intend to put private bond holders on an equal footing with official lenders.
"It's one of the important points of the discussion," an EU official said.
Madrid's formal request for aid is set to come shortly after two separate evaluations of its banking sector are published on Thursday, although it was unclear if this would come on the same day. The reports will give an estimate of total capital needs of the banks and would determine the size of assistance, which could come from the ESM or from the region's temporary bailout fund, the European Financial Stability Facility, officials said.
The ESM is due to come into force in July.
Ministers may also discuss calls by Spain and others for the bailout fund to be able to be deployed to inject capital directly into banks, bypassing governments and breaking the link between banks and sovereign borrowers, though a decision on this is unlikely.
Cyprus, whose banking sector has been battered over its exposure to Greek sovereign debt, is also poised in coming days to make a request for targeted aid, albeit on a far smaller scale than Spain's.
Officials on the Mediterranean island, which has the 15th-largest economy in the 17-nation euro zone, have signaled they could split their request for around EUR8 billion in aid between the euro zone and Russia, a country that has already extended loans to the government.
Euro-zone finance ministers are set to meet a day after Greece's conservative New Democracy party leader Antonis Samaras was sworn in as prime minister.
Officials have sought to damp speculation that the tight strings attached to Greece's bailout program could be loosened as a gesture of goodwill toward the new government, formed after two rounds of nail-biting elections. Ministers will demand a cast-iron commitment from the new authorities that they will stick to conditions of the bailout and come up with EUR11.6 billion or more in new austerity measures demanded by the country's creditors.
"There can be no discussion on revisiting the terms of the Greece's bailout before we get the signal from them that they are going to honor their commitments. People are tired of shelling out money for Greece," said one EU diplomat familiar with the discussion.
Any extension of the targets would also ramp up the cost of the Greek bailout, something which Germany, the euro zone's main paymaster, and others have signaled would be highly unpalatable politically.
However, ministers may well consider disbursing EUR1 billion in bailout funds that had been withheld in May, two people familiar with the situation said. The aid would be targeted almost exclusively to pay Greece's EUR900 million contribution to the ESM.
"It's a symbolic gesture, that we would again be giving funds to a Greek government," an EU official said. The funds had been withheld after the Greek elections on May 6 failed to produce a government.
On Friday, finance ministers from all of the EU's 27 member states will gather for talks that will focus on a controversial levy on banks. Britain and Sweden are fiercely opposed to the financial-transaction tax but France and Germany may formally request plans for a smaller group of nine countries to move forward on the measure.
If endorsed, the move would by a major policy shift by German Chancellor Angela Merkel, who had previously supported such a tax in principle but only if endorsed by all of the EU's members. Key differences remain over how proceeds of a financial-transaction tax should be spent, with France pushing to use the money for the EU budget, a proposal Germany currently opposes.
Write to Vanessa Mock at vanessa.mock@dowjones.com.
--Matina Stevis and Laurence Norman contributed to this article.
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