Eurozone crisis live: G7 finance ministers hold 'Germany bashing' talks:
• G7 finance ministers speaking
• Canadian finance minister: Europe's the main concern
• Europe's service sector is shrinking...
• ...and retail sales fall too
• Today's agenda
1.25pm: Our understanding is that UK chancellor George Osborne is taking part in the G7 call to discuss the eurocrisis.
There's no official word about how the call is going, but an Italian government officials has told the FT that the call is basically a follow-up to the discussion which took place two weeks ago when the G8 met in America.
That suggests that the issues of eurozone bank recapitalisation and growth strategies could dominate the call...
12.49pm: French foreign minister Laurent Fabius has weighed in over the Spanish banking crisis today, telling a conference in Paris that banking union could help address the crisis.
Fabius argued that a solution must be found that does not add to Spain's own debts, at a time when its bond yields are already dangerously high.
Fabius said:
He added that France would "favour" a solution based around a banking union.
Of course, Fabius isn't completely impartial here. French banks hold a lot of Spanish debt, and would also benefit from closer banking ties across the eurozone.
So, where are we with Spain? After weeks of deadlock, it does feel as if its banking crisis is close to some kind of resolution.
The key sticking point remains Spain's extreme resistance to taking any form of official bailout. As reported at 12.08pm, that is irking some members of the G7, with Reuters reporting this lunchtime that Madrid's "fatal hubris" is causing some alarm.
The Spanish government does appear to be giving some ground. Treasury minister Cristobal Montoro admitted this morning (see 9.17am) that European institutions need to "open up" and help the country recapitalise its banks.
The hitch, though, is that Europe's bailout funds cannot, as currently defined, pump money into a national banking system directly.
12.37pm: Looking briefly at the currency and commodity markets, the euro has lost more than half a cent against the US dollar this morning. From $1.2490 overnight, the euro has now dropped to $1.242.
The pound is also down against the US dollar, trading around $1.5343.
The strengthening dollar has also pushed down the oil price, with a barrel of Brent crude down 81 cents at $98.04. And the gold price is flat, at $1,618 per ounce.
12.08pm: A source at a G7 country has told Reuters that today's G7 conference call is likely to turn into a "Germany bashing session".
That suggests the US, the UK, France, Italy, Japan and Canada may be taking a united position that Germany needs to change its approach to the crisis.
Reuters' G7 source also says that Germany is "pushing Spain' to take help from the European bailout fund to recapitalise its banks, but that Madrid is currently resisting.
From the terminal:
That fits with reports that Spain has been privately pushing for help for its banks without the Spanish state having to take an aid deal. Under the current rules, of course, the European Stability Mechanism cannot directly recapitalise European banks (although many players, including the IMF, think it should able to).
Officially, Germany has been arguing that Spain has been 'everything right'.
11.52am: German finance minister Wolfgang Schäuble has given an interview to Handelsblatt, in which he reiterates Berlin's position that "a real fiscal union" must be created before more contentious issues such as eurobonds can be considered.
Schäuble told the business daily that closer fiscal ties remain the first step, and even that is a 'medium-term' objective. Banking union could come later, but Schäuble didn't indicate it could happen quickly, saying:
There's some more detail here and here.
Schäuble should be on the G7 conference call, starting soon...
11.39am: An interesting development in the Italian banking sector today – Alessandro Profumo, the former chief executive of UniCredit, has today been indicted in a tax fraud case, according to reports from Milan.
Profumo is one of 20 bankers charged with alleged tax fraud. According to Bloomberg, several other former Unicredit execs are also facing trial, along with some former staff from Barclays. Details here.
11.35am: The European Union has said that the G7 conference call (due to start in 25mins) will allow the EU to update its partners on the region's response to the ongoing crisis.
At the regular midday briefing, an EU spokesman also explained that the G7 call is part of a "regular exchanges of views", so we shouldn't panic just because finance ministers are talking.
It's not clear, though, which EU officials will be on the call:
11.22am: City analysts and traders hope that the G7 can make some headway in their conference call at noon BST, but they aren't terribly confident.
Michael Derks, chief strategist of currency trading site FxPro, commented:
News of the talks did help push shares higher in Japan overnight, where the Nikkei finished 1% higher. There's less optimism in Europe, though, with German shares lower, and Wall Street expected to open slightly lower (but that could change, depending on how the G7 call goes)
11.05am: Another piece of poor economic news – German industrial orders fell by 1.9% in April. That is the biggest drop since last November, and worse than expected (economists had predicted -1.1%)
Yet another sign that the eurozone economy has deteriorated in recent months - although the German economy ministry did point out that March had seen surprisingly strong growth, so a fallback in April shouldn't be a shock.
10.37am: Reuters is reporting that G7 finance minister will hold their conference call to discuss the eurozone crisis at 11am GMT, so in an hour and half's time.
10.20am: More euro economic gloom -- retail sales across the single currency region fell by 1.0% in April, compared with March. That's the biggest monthly fall since last December.
On a year-on-year basis, retail sales were 2.5% lower than a year ago.
Howard Archer of IHS Global Insight said it was "a dismal day for the Eurozone on the economic front" (with the service sector shrinking at its fastest rate in almost three years).
10.05am: After an early rally, European stock markets have dropped back, with Germany's DAX in the red again:
DAX: down 54 points at 5923, - 0.9%
CAC: up 7 points at 2962, + 0.26%
IBEX: up 20 points at 6260, + 0.29%
That follows the news that Eurozone private sector shrank again last month (see 9.36am)
German shares also fall yesterday, on concerns that its exporters will suffer from a global economic slowdown, or worse, if the eurozone crisis is not resolved.
9.36am: Europe's service sector has suffered its worst monthly decline in almost three years, in the latest evidence that the region's economy is shrinking.
Markit reported its latest PMI data this morning, and the picture across Europe was pretty bleak. Germany's service sector grew at its weakest amount for six months in May, while most other countries' sectors shrank:
Germany: 51.8 (where >50= growth, and <50=contraction)
Spain: 41.8
Italian: 42.8
France: 45.1
When combined with last Friday's manufacturing data (which was also grim), the data shows that the Eurozone's private sector shrank at its fastest pace since June 2009. At 46.0, May's 'composite PMI' was the fourth month in a row to show a contraction. Even Germany's output fell, although at a slower rate than the rest of the eurozone.
Chris Williamson, Markit's chief economist, said the data suggests eurozone GDP will fall by as much as 0.5% this quarter (having stagnated in Q1).
9.17am: Spain's Treasury minister has caused some disquiet this morning by stating that the country is effectively shut out of the bond markets -- just two day before it holds a debt sale.
Cristobal Montoro also appeared to signal that Spain needs international help, but not a full bailout, in an interview with Spanish broadcaster Onda Cero.
Montoro told the radio station that:
Spain's 'risk premium', measured by the difference between the yield on its 10-year bonds and the German equivalent hit record levels last week. As I type, the spread between the two bond yields is 515 basis points - a massive difference in borrowing costs.
Spain is due to auction €2bn of medium-term debt on Thursday.
Montoro expressed strong support for Europe to create a closer "banking union", saying a decision should be taken at the next EU summit at the end of June. He also argued that "European institutions" should provide funding to help recapitalise its banks, saying Spain needs to show how it will strengthen its banking sector.
Bloomberg reckons this is the first time a Spanish minister has called for outside funds. Prime minister Mariano Rajoy has long argued that the European Stability Mechanism should be able to recapitalise European banks directly (rather than via the state), without going as far as to state that Spain needs their help.
Montoro also said it was 'technically impossible' to bailout Spain itself – an acknowledgement that Europe's firewall isn't strong enough.
9.08am: Britain saw its credit rating cut by one notch last night, by ratings agency Egan Jones.
Egan Jones slashed the UK's rating by one notch to AA-minus, from AA, and left a negative outlook on the rating. It warned that Britain may fail to trim its deficit as quickly has planned, saying in a statement that:
Not a very nice way to mark the Queen's Diamond Jubilee...
Egan Jones isn't one of the Big Three rating agencies, and at present it rates many countries as more of a credit risk than Moody's, S&P or Fitch.
9.01am: Our Europe editor, Ian Traynor, argues in today's Guardian that a "United States of Europe" may be the only way to save the eurozone. Here's a flavour:
The full piece is here.
8.45am: As Rainman2 points out in the reader comments, three of Portugal's banks are being recapitalised to the tune of €6.6bn.
The move will mean Banco Commercial Portugues, Banco BPI and Caixa Geral de Depósitos can all hit Europe's tougher capital reserve requirements. The money is coming from Portugal's €78bn bailout (agreed last year, which included €12bn for its financial sector).
Crucially, Portugal is still meeting the terms of its rescue package, despite fears that a second bailout might be needed. Its Troika of lenders announced last night that the Portuguese financial reform programme "remains on track amidst continued challenges." That decision means Lisbon will receive its next tranches of aid, totalling €4.1bn.
The financial markets, though, are still pricing Portugal as a serious risk. It's 10-year bonds are trading at a yield of around 11.5% today, deep into the 'danger zone'.
8.36am: The news that G7 finance chiefs are to hold a teleconference call today is a clear signal from the world's largest economies that the Eurozone must take rapid steps to stem the crisis.
The call was first revealed by Canadian finance minister Jim Flaherty last night. He told reporters that ministers and central bankers from Canada, the US, Britain, Japan, Germany, France and Italy would hold a special conference call to discuss the eurozone crisis, explaining that:
This mesage was reiterated by the US government, with White House press secretary Jay Carney warning that "more steps need to be taken" to address the crisis and reassure the financial markets.
And overnight, Japan's finance minister, Jun Azumi, also confirmed that concerns over the eurozone crisis are now dangerously high, warning:
G7 conference calls are usually confidential, so Flaherty's decision to go public may indicate that world leaders are keen to apply the maximum pressure to the eurozone. We don't yet know when the call is taking place.....
8.27am: Here's a quick agenda of some of the main events and economic data coming up:
• G7 finance ministers hold conference call: timing currently unknown
• Eurozone purchasing manager index on services for May: 9am BST
• Eurozone retail sales for April: 10am BST / 11am CEST
• German factory orders for April: 11am BST/ noon CEST
• Bank of Canada's interest rate decision: 2pm BST/ 9am EDT
8.20am: Good morning, and welcome back to our rolling coverage of the eurozone financial crisis.
After a day off yesterday to toast her Majesty and put up more bunting, we're back to track the latest action across Europe. The key development this morning is that G7 finance ministers are due to hold emergency talks on the euro zone debt crisis later today. More on this shortly.
Across Europe, pressure is growing on Germany to accept a 'banking union' across Europe. As my colleagues Ian Traynor and Giles Tremlett report:
Things may be quieter than normal, with the UK enjoying another bank holiday today. But other European markets will be trading as usual, after a mixed day yesterday, so there should be plenty to report. There's also some interesting economic data due, covering the world's service sectors, eurozone retail sale, and German factory orders.
guardian.co.uk © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds
• G7 finance ministers speaking
• Canadian finance minister: Europe's the main concern
• Europe's service sector is shrinking...
• ...and retail sales fall too
• Today's agenda
1.25pm: Our understanding is that UK chancellor George Osborne is taking part in the G7 call to discuss the eurocrisis.
There's no official word about how the call is going, but an Italian government officials has told the FT that the call is basically a follow-up to the discussion which took place two weeks ago when the G8 met in America.
That suggests that the issues of eurozone bank recapitalisation and growth strategies could dominate the call...
12.49pm: French foreign minister Laurent Fabius has weighed in over the Spanish banking crisis today, telling a conference in Paris that banking union could help address the crisis.
Fabius argued that a solution must be found that does not add to Spain's own debts, at a time when its bond yields are already dangerously high.
Fabius said:
We have to find mechanisms, methods to bring the necessary funds to allow the system to continue to function properly without adding to Spain's budget deficit, otherwise we won't get anywhere....If, to save the bank, you have to increase the deficit and this increase leads to higher interest rates, then it's the snake eating its tail.
He added that France would "favour" a solution based around a banking union.
Of course, Fabius isn't completely impartial here. French banks hold a lot of Spanish debt, and would also benefit from closer banking ties across the eurozone.
So, where are we with Spain? After weeks of deadlock, it does feel as if its banking crisis is close to some kind of resolution.
The key sticking point remains Spain's extreme resistance to taking any form of official bailout. As reported at 12.08pm, that is irking some members of the G7, with Reuters reporting this lunchtime that Madrid's "fatal hubris" is causing some alarm.
The Spanish government does appear to be giving some ground. Treasury minister Cristobal Montoro admitted this morning (see 9.17am) that European institutions need to "open up" and help the country recapitalise its banks.
The hitch, though, is that Europe's bailout funds cannot, as currently defined, pump money into a national banking system directly.
12.37pm: Looking briefly at the currency and commodity markets, the euro has lost more than half a cent against the US dollar this morning. From $1.2490 overnight, the euro has now dropped to $1.242.
The pound is also down against the US dollar, trading around $1.5343.
The strengthening dollar has also pushed down the oil price, with a barrel of Brent crude down 81 cents at $98.04. And the gold price is flat, at $1,618 per ounce.
12.08pm: A source at a G7 country has told Reuters that today's G7 conference call is likely to turn into a "Germany bashing session".
That suggests the US, the UK, France, Italy, Japan and Canada may be taking a united position that Germany needs to change its approach to the crisis.
Reuters' G7 source also says that Germany is "pushing Spain' to take help from the European bailout fund to recapitalise its banks, but that Madrid is currently resisting.
From the terminal:
"They don't want to. They are too proud. It's fatal hubris," the source said of the government in Madrid.
That fits with reports that Spain has been privately pushing for help for its banks without the Spanish state having to take an aid deal. Under the current rules, of course, the European Stability Mechanism cannot directly recapitalise European banks (although many players, including the IMF, think it should able to).
Officially, Germany has been arguing that Spain has been 'everything right'.
11.52am: German finance minister Wolfgang Schäuble has given an interview to Handelsblatt, in which he reiterates Berlin's position that "a real fiscal union" must be created before more contentious issues such as eurobonds can be considered.
Schäuble told the business daily that closer fiscal ties remain the first step, and even that is a 'medium-term' objective. Banking union could come later, but Schäuble didn't indicate it could happen quickly, saying:
We should take one step after another
There's some more detail here and here.
Schäuble should be on the G7 conference call, starting soon...
11.39am: An interesting development in the Italian banking sector today – Alessandro Profumo, the former chief executive of UniCredit, has today been indicted in a tax fraud case, according to reports from Milan.
Profumo is one of 20 bankers charged with alleged tax fraud. According to Bloomberg, several other former Unicredit execs are also facing trial, along with some former staff from Barclays. Details here.
11.35am: The European Union has said that the G7 conference call (due to start in 25mins) will allow the EU to update its partners on the region's response to the ongoing crisis.
At the regular midday briefing, an EU spokesman also explained that the G7 call is part of a "regular exchanges of views", so we shouldn't panic just because finance ministers are talking.
It's not clear, though, which EU officials will be on the call:
EU says cannot yet confirm if EU's Rehn will take part in the G7 call
— Fabrizio Goria (@FGoria) June 5, 2012
11.22am: City analysts and traders hope that the G7 can make some headway in their conference call at noon BST, but they aren't terribly confident.
Michael Derks, chief strategist of currency trading site FxPro, commented:
Frankly, given the incredibly fragile sentiment evident over recent weeks, the G-7 needs to come up with something fairly convincing to soothe the nerves of traders and investors alike.
News of the talks did help push shares higher in Japan overnight, where the Nikkei finished 1% higher. There's less optimism in Europe, though, with German shares lower, and Wall Street expected to open slightly lower (but that could change, depending on how the G7 call goes)
11.05am: Another piece of poor economic news – German industrial orders fell by 1.9% in April. That is the biggest drop since last November, and worse than expected (economists had predicted -1.1%)
Yet another sign that the eurozone economy has deteriorated in recent months - although the German economy ministry did point out that March had seen surprisingly strong growth, so a fallback in April shouldn't be a shock.
10.37am: Reuters is reporting that G7 finance minister will hold their conference call to discuss the eurozone crisis at 11am GMT, so in an hour and half's time.
10.20am: More euro economic gloom -- retail sales across the single currency region fell by 1.0% in April, compared with March. That's the biggest monthly fall since last December.
On a year-on-year basis, retail sales were 2.5% lower than a year ago.
Howard Archer of IHS Global Insight said it was "a dismal day for the Eurozone on the economic front" (with the service sector shrinking at its fastest rate in almost three years).
10.05am: After an early rally, European stock markets have dropped back, with Germany's DAX in the red again:
DAX: down 54 points at 5923, - 0.9%
CAC: up 7 points at 2962, + 0.26%
IBEX: up 20 points at 6260, + 0.29%
That follows the news that Eurozone private sector shrank again last month (see 9.36am)
German shares also fall yesterday, on concerns that its exporters will suffer from a global economic slowdown, or worse, if the eurozone crisis is not resolved.
9.36am: Europe's service sector has suffered its worst monthly decline in almost three years, in the latest evidence that the region's economy is shrinking.
Markit reported its latest PMI data this morning, and the picture across Europe was pretty bleak. Germany's service sector grew at its weakest amount for six months in May, while most other countries' sectors shrank:
Germany: 51.8 (where >50= growth, and <50=contraction)
Spain: 41.8
Italian: 42.8
France: 45.1
When combined with last Friday's manufacturing data (which was also grim), the data shows that the Eurozone's private sector shrank at its fastest pace since June 2009. At 46.0, May's 'composite PMI' was the fourth month in a row to show a contraction. Even Germany's output fell, although at a slower rate than the rest of the eurozone.
Chris Williamson, Markit's chief economist, said the data suggests eurozone GDP will fall by as much as 0.5% this quarter (having stagnated in Q1).
There is some convergence among member countries, but unfortunately only in the sense that all of the largest are now experiencing downturns. While Germany is contracting only marginally, alarmingly steep downturns are evident in Spain, Italy and now also France.
Italy seems to be faring the worst, with its PMI consistent with GDP falling by more than 1% in the second quarter.
9.17am: Spain's Treasury minister has caused some disquiet this morning by stating that the country is effectively shut out of the bond markets -- just two day before it holds a debt sale.
Cristobal Montoro also appeared to signal that Spain needs international help, but not a full bailout, in an interview with Spanish broadcaster Onda Cero.
Montoro told the radio station that:
The risk premium says Spain doesn't have the market door open...The risk premium says that as a state we have a problem in accessing markets, when we need to refinance our debt.
Spain's 'risk premium', measured by the difference between the yield on its 10-year bonds and the German equivalent hit record levels last week. As I type, the spread between the two bond yields is 515 basis points - a massive difference in borrowing costs.
Spain is due to auction €2bn of medium-term debt on Thursday.
Montoro expressed strong support for Europe to create a closer "banking union", saying a decision should be taken at the next EU summit at the end of June. He also argued that "European institutions" should provide funding to help recapitalise its banks, saying Spain needs to show how it will strengthen its banking sector.
That's why it's so important that the European institutions open up and help us achieve, help facilitate, that figure because we're not talking about astronomical figures.
Bloomberg reckons this is the first time a Spanish minister has called for outside funds. Prime minister Mariano Rajoy has long argued that the European Stability Mechanism should be able to recapitalise European banks directly (rather than via the state), without going as far as to state that Spain needs their help.
Montoro also said it was 'technically impossible' to bailout Spain itself – an acknowledgement that Europe's firewall isn't strong enough.
9.08am: Britain saw its credit rating cut by one notch last night, by ratings agency Egan Jones.
Egan Jones slashed the UK's rating by one notch to AA-minus, from AA, and left a negative outlook on the rating. It warned that Britain may fail to trim its deficit as quickly has planned, saying in a statement that:
The over-riding concern is whether the country will be able to continue to cut its deficit in the face of weaker economic conditions and a possible deterioration in the country's financial sector
Not a very nice way to mark the Queen's Diamond Jubilee...
Egan Jones isn't one of the Big Three rating agencies, and at present it rates many countries as more of a credit risk than Moody's, S&P or Fitch.
9.01am: Our Europe editor, Ian Traynor, argues in today's Guardian that a "United States of Europe" may be the only way to save the eurozone. Here's a flavour:
The USE – United States of Europe – is back. For the eurozone, at least. Such "political union", surrendering fundamental powers to Brussels, Luxembourg and Strasbourg, has always been several steps too far for the French to consider.
But Berlin is signalling that if it is to carry the can for what it sees as the failures of others there will need to be incremental but major integrationist moves towards a banking, fiscal, and ultimately political union in the eurozone.
It is a divisive and contested notion which Merkel did not always favour. In the heat of the crisis, however, she now appears to see no alternative.
The next three weeks will bring frantic activity to this end as a quartet of senior EU fixers race from capital to capital sounding out the scope of the possible.
The full piece is here.
8.45am: As Rainman2 points out in the reader comments, three of Portugal's banks are being recapitalised to the tune of €6.6bn.
The move will mean Banco Commercial Portugues, Banco BPI and Caixa Geral de Depósitos can all hit Europe's tougher capital reserve requirements. The money is coming from Portugal's €78bn bailout (agreed last year, which included €12bn for its financial sector).
Crucially, Portugal is still meeting the terms of its rescue package, despite fears that a second bailout might be needed. Its Troika of lenders announced last night that the Portuguese financial reform programme "remains on track amidst continued challenges." That decision means Lisbon will receive its next tranches of aid, totalling €4.1bn.
The financial markets, though, are still pricing Portugal as a serious risk. It's 10-year bonds are trading at a yield of around 11.5% today, deep into the 'danger zone'.
8.36am: The news that G7 finance chiefs are to hold a teleconference call today is a clear signal from the world's largest economies that the Eurozone must take rapid steps to stem the crisis.
The call was first revealed by Canadian finance minister Jim Flaherty last night. He told reporters that ministers and central bankers from Canada, the US, Britain, Japan, Germany, France and Italy would hold a special conference call to discuss the eurozone crisis, explaining that:
The real concern right now is Europe of course – the weakness in some of the banks in Europe, the fact they're undercapitalised, the fact the other European countries in the eurozone have not taken sufficient action yet to address those issues of undercapitalisation of banks and building an adequate firewall.
This mesage was reiterated by the US government, with White House press secretary Jay Carney warning that "more steps need to be taken" to address the crisis and reassure the financial markets.
And overnight, Japan's finance minister, Jun Azumi, also confirmed that concerns over the eurozone crisis are now dangerously high, warning:
We have reached a point where we need to have a common understanding about the problems we are facing.
G7 conference calls are usually confidential, so Flaherty's decision to go public may indicate that world leaders are keen to apply the maximum pressure to the eurozone. We don't yet know when the call is taking place.....
8.27am: Here's a quick agenda of some of the main events and economic data coming up:
• G7 finance ministers hold conference call: timing currently unknown
• Eurozone purchasing manager index on services for May: 9am BST
• Eurozone retail sales for April: 10am BST / 11am CEST
• German factory orders for April: 11am BST/ noon CEST
• Bank of Canada's interest rate decision: 2pm BST/ 9am EDT
8.20am: Good morning, and welcome back to our rolling coverage of the eurozone financial crisis.
After a day off yesterday to toast her Majesty and put up more bunting, we're back to track the latest action across Europe. The key development this morning is that G7 finance ministers are due to hold emergency talks on the euro zone debt crisis later today. More on this shortly.
Across Europe, pressure is growing on Germany to accept a 'banking union' across Europe. As my colleagues Ian Traynor and Giles Tremlett report:
Europe's leaders appear to be edging towards an ambitious and controversial new blueprint for a federalised eurozone after Paris and Brussels threw their weight behind Spain's pleas for an EU rescue of its beleaguered banks.
At the start of three weeks likely to be crucial to the survival of the euro, the new French government and the European commission voiced strong backing for a new eurozone "banking union" to save the single currency.
The plan could see vast national debt and banking liabilities pooled – and then backed by the financial strength of Germany – in return for eurozone governments surrendering sovereignty over their budgets and fiscal policies to a central eurozone authority.
A "gang of four" – the European council president, the commission chief, the president of the European Central Bank and the head of the eurogroup of 17 finance ministers – has been charged with drafting the proposals for a deeper eurozone fiscal union, to be presented to an EU summit at the end of the month.
Things may be quieter than normal, with the UK enjoying another bank holiday today. But other European markets will be trading as usual, after a mixed day yesterday, so there should be plenty to report. There's also some interesting economic data due, covering the world's service sectors, eurozone retail sale, and German factory orders.
guardian.co.uk © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds
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