News in from Athens where our correspondent Helena Smith reports yet another twist to the debt crisis. Greece's caretaker prime minister Panaghiotis Pikrammenos has JUST proved once again that this is a debt drama with more contradictions (or perhaps theatrical ploys) than a Molière play.
News in from Athens where our correspondent Helena Smith reports yet another twist to the debt crisis.
Greece's caretaker prime minister Panaghiotis Pikrammenos has JUST proved once again that this is a [debt] drama with more contradictions (or perhaps theatrical ploys) than a Molière play. One day after the EU summit, the high court judge as diplomacy dictates, spent the morning back in Athens briefing Greece's head of state president Karolos Papoulias. The summit was he said especially "positive." "I'd like to tell you that contrary to the rumours of the last few days and contrary to what has been written in newspapers, all of our European partners want our country to remain in the euro zone. And because of this we discussed at length taking certain measures that could help our country in the direction of development and combating unemployment," he said.
Readers will recall that addressing reportersin the wee hours of Thursday after the summit, the prime minister revealed that Angela Merkel, the German chancellor had expressed her irriation at all the "scenarios" about Greece exiting the euro zone during a private meeting he had had with her. It has not been lost on commentators here that most of those scenarios have been cultivated by venerable institutions like the Bundesbank in Berlin.
The euro has recovered somewhat from two-year lows against the dollar today but the outlook remains bleak given worries over a Grexit and the risk of contagion.
The euro inched up to $1.2581, from $1.25155, the lowest level since July 2010 yesterday.
Geoff Kendrick, a currency analyst at Nomura, says:
We think if Greece does not exit the eurozone, the euro will see a gradual decline to $1.23 in coming months. But if it does, then we see the euro falling to $1.20 by the end of the second quarter and $1.15 by the end of the third.
A new reality for the eurozone is on the way: Cheviot's David Miller sums up the week.
• Uncertainty is increasing and unlikely to subside until Germany defines the 'new reality' for the eurozone
• The fall in UK inflation re-opens the door for QE
• Watch out for action by other central banks looking for ways to stimulate growth
The dysfunctional eurozone remains a major concern to all. Recessionary forces are strengthening and no sensible solutions are close to implementation. In Spain, with recession drifting towards depression and unemployment over 25%, investors are heading for the exit, leaving the local banks, funded by the ECB, as the only material buyers of government debt. Voters throughout Europe are exercising their democratic rights and are voting against further austerity.
Uncertainty is increasing and is unlikely to subside until Germany defines the 'new reality' for the eurozone – a move to a more federal Europe with no leavers, partial fragmentation or breakup. No one can be certain about the outcome. Forget market manipulation by international banks and hedge funds; Germany is the ultimate insider.
In Greece, having delivered a protest vote, perhaps the Greek voters will shift back on 17/6, allowing the formation of a government that will cooperate with the EU/ECB/IMF.
Financial markets are trading in an increasingly correlated way. One of the reasons for this is that central banks are pursuing similar agendas. After four years of consistent action to support growth and ensure that financial markets are liquid, Q1 saw a series of more hawkish, less accommodative statements.
• In the US, the Federal Reserve indicated that encouraging economic news made further Quantitative Easing less necessary.
• In Europe, after the injection of €1 trillion liquidity into the banking system, the ECB, although talking about a "Growth Compact" essentially passed the buck back to Governments.
• Finally in the UK, the monetary policy committee, hemmed in by higher than expected inflation, backed away from providing more support.
Only the Bank of Japan talked about making a move in the opposite direction in an attempt to lift the world's third largest economy out of the deflationary mire. Markets sensed that for the moment, they were on their own, which is one of the reasons why since mid-March, trading has been much more erratic.
Now the mood music has changed and QE on both sides of the Atlantic is back on the agenda. Economic growth forecasts are being downgraded due to a combination of less robust growth in China and increasing concern about the eurozone.
HSBC - Europe's biggest bank - has warned that the eurozone crisis and increasing regulation could affect its future performance. It said it would deploy capital in markets where it can expect higher growth.
Chief executive Stuart Gulliver told the bank's annual meeting at the Barbican in London:
There remain factors affecting our performance that are beyond our immediate control - from the eurozone to the future regulation of the industry. We have gained real traction over the past year in those areas we can control.
Greece should be ok if the next tranche of bailout money is delayed for a few weeks, a German finance ministry spokesman told Reuters.
"As far as I am aware, there is no current need for external financing up until beyond the first half of the year," spokesman Martin Kotthaus said at a regular news conference in Berlin. He added that a delay of a few weeks would be "unproblematic".
He also said that Greece's lenders will need a positive report on their reform progress before a planned second tranche of aid worth €4bn is released at the end of June. Greece holds a second election on 17 June after an election in early May produced a messy result. Syrizas, the radical leftist party opposed to the EU-IMF austerity programme, is expected to do well.
here.In France, confidence is improving, according to stats office Insee. According to its confidence index, households' optimism about the economic situation continues to edge up, with the index gaining 1 point in May from April. It has gained 9 points since November but still remains below its long-term average. More
The Footsie has just turned negative, trading down 2 points at 5348, while European markets are still up. David Jones, chief market strategist, IG Index, says:
Markets have maintained an upbeat tone so far this morning, despite news of the suspension of Spanish bank Bankia. The new management team of Bankia are expected to ask for a €15bn bailout from the government today, and it is thought the suspension is to avoid any further speculation until the results of the meeting are known. Market reaction to this has been negligible, with even the Spanish stock market index still just about positive for the day. So it would appear – for now at least – that investors see Bankia as an isolated case and not the first warning sign for Spain's banking sector as a whole.
Back to the UK, earlier this week the FTSE did have a brief flirtation with the 5400 level so there is definitely scope for some more gains from here – although the combination of the weather, the weekend and Monday's US holiday may see activity fade as the day goes on.
Looking ahead to the US, at the moment we are expecting the Dow around 40 points higher at the open.
The mood among consumers in Germany was very stable in May. Consumers are considerably more optimistic than in the previous month and willingness to buy also increased slightly. Income expectations, however, dropped marginally. Following a revised value of 5.7 points in May, the overall indicator is also forecasting 5.7 points for June.
Got an email from Graeme Wearden this morning but he hasn't told me yet how he is feeling. He won the online financial journalist of the year award at the Wincott Awards, and was also commended last night for the Reporting Europe prize. What a star!
Over to Greece where our correspondent Helena Smith says an emergency meeting is about to be held at the economy ministry to discuss dramatically declining state revenues.
Clearly alarmed by plummeting budget revenues, attributed in part to the country's political instability following inconclusive elections earlier this month, Greece's caretaker government has decided to take action. Figures released by the state general accounting office show revenues down by almost a third – some €1.35bn - compared to May last year.
The dramatic decline will be the focus of an emergency meeting called by Finance Minister Giorgos Zannias to discuss ways of plugging the budget black hole. Officials have blamed the precipitous fall on the failure of tax authorities to collect revenues – partly because of the uncertainty that has followed Greece political limbo and partly because of cuts to salaries and wages. Ministry officials say they are now considering extending the deadline for the submission of tax returns from 15 June to the end of the month.
More from Kate Connolly in Berlin.
Bild is reporting the carefully coordinated contingency plan to enable Greece to leave the euro.
The travel agency TUI is insisting on having a drachma clause in all its contracts, to protect it from financial loss should a currency switch take place.
supermarket chain Metro is making plans to allow customers in its Greek shops to pay in Drachma. It's making preparations for pricing labels and cash machines to be changed, according to the paper.
Deutsche Telekom has sent experts to its Greek partner, OTE to help plan for a change from euro to drachma. German banks have reportedly written off all their junk Greek funds and investments so that a Grexit will not affect them. In addition the paper writes, the European Central Bank is working out practical ways in which Euro notes could be switched ie by stamping them with a special magnetic stamp. The ECB also needs to work out what it does with the €40bn worth of Greek bonds it possesses. In the event of Greece going bankrupt, or leaving the eurozone they could end up being worthless.
Our Berlin correspondent Kate Connolly has just sent this in.
Der Spiegel is just coming out with a report saying it has information about a German government 6-point plan to encourage growth in Europe, under which crisis countries like Greece would receive tax concessions, on condition though that they reform their labour markets, like Germany did in the early days of the euro.
The plan involves creating special economic zones in the crisis-struck parts of the eurozone. Foreign investors would be lured with tax incentives and more relaxed regulation. The crisis countries would be required to establish German-style privatisation agencies or privatisation funds to sell off/part privatise parts of the public sector.
Sueddeutsche Zeitung is writing on its front page that internally the eurozone partners are very seriously preparing for a Gexit, while externally wanting to create impression that Greece is staying.
Shares in Spanish lender Bankia have been suspended "due to circumstances that may affect the normal share trading," the Spanish stock market regulator CMV said this morning. The shares closed down 7.4% yesterday.
Bankia will ask the government for more than €15bn in bailout money when its new management team presents a restructuring plan today, Reuters reported, citing a financial sector source. More from my colleague Giles Tremlett in Madrid here.
Today is Bankia day in Spain, with taxpayers likely to discover how much money they must inject into the ailing part-nationalised bank, reports our man in Madrid, Giles Tremlett.
Last night's reports of €15bn are partly the result of the new management team setting a lower valuation for the bank's parent company BFA in a revised version of the 2011 accounts, according to Expansion newspaper.
That may provoke trouble with the 400,000 shareholders who bought into Spain's fourth biggest bank when it floated shares in July.
The move generates losses at BFA, according to Expansion, which explains why the size of the capital injection it needs from the state has shot up. A board meeting today should provide greater clarity.
El País, meanwhile, continues to insist that the government is studying turning Bankia into a massive nationalised bank by merging it with other troubled cajas - the savings banks that have found themselves drowning in toxic real estate left over from a 2008 housing bust.
It says Bankia might absorb Catalunyacaixa and Novagalicia, two of Spain's top ten lenders. Other smaller banks that have been rescued by the state might also be thrown into the pot.
Readers are asking about the whereabouts of my esteemed colleague Graeme Wearden, who won the award for online financial journalist of the year at the prestigious Wincott Awards yesterday. He actually has the day off today and I haven't heard from him this morning (it's still early). I'll keep you posted....
Well, despite ongoing disputes among EU leaders over the right way forward, European stock markets have opened higher. The FTSE edged up more than 20 points to 5373 in early trading, a 0.45% rise. It is on track for its best weekly performance in a month as investors are snapping up cheap stocks. On Monday, the Footsie hit a six-month low of 5253,92.
Spain's Ibex has gained 0.9%, Italy's FTSE MIB is more than 1% ahead, Germany's Dax has risen 0.8% while France's CAC has climbed 0.7%. Bank shares are bouncing back.
"The euro bails out," says Simon Smith, chief economist at FxPro. Here are his morning musings on the single currency:
Markets approach the end of what has been a pretty difficult week. The single currency has made news lows for the year (vs. the dollar) and markets have no more faith in the ability of eurozone leaders to quell speculation around a Greek exit as anti-bailout parties retain their lead in the Greek election opinion polls. We've also seen the capitulation of the single currency, something which we talked about earlier this month, where the euro has been the weakest currency in a period of dollar strength, rather than the more traditional high-beta currencies, such as the Aussie. The price action on the single currency this week means that we run the risk of short-covering activity into the weekend. Also, the Swiss franc is worth keeping a small eye on after yesterday's volatility (at least compared to recent activity), which was mostly on the back of - so far - denied rumours of further measures to quell currency strength.
here.So what is all the fuss about Eurobonds about? Read our essential guide
The FTSE 100 index in London has opened some 14 points higher at 5364, a 0.27% gain.
Oil is steady but is on track for its fourth weekly loss - the longest losing streak since early 2010 - as investors worry over the global economic outlook. Brent crude futures inched up 2 cents to $106.57 a barrel this morning.
Good morning and welcome back to our rolling coverage of the eurozone debt crisis and world economy. It's a quiet day for economic data in Europe today apart from consumer confidence figures for Germany and France, so the divisions between EU leaders over how to restore confidence in the euro take centre stage again.
A major rift has opened up between Germany and France for the first time since the crisis began, our Europe editor Ian Traynor reported yesterday from Brussels. The new French president, François Hollande, insists that eurobonds are the only way forward and together with the Italian prime minister, Mario Monti, is piling pressure on German chancellor Angela Merkel.
Michael Hewson, senior market analyst at CMC Markets UK, says the "battle lines" are beginning to get drawn over eurobonds.
It can't be any surprise to see the countries that would benefit the most from lower borrowing costs are looking to leverage off Germany's position as the strongest EU economy, and its triple-A rating.
In any case Germany is not isolated on this issue with Austria, Holland and Finland coming out against the proposals, all countries who don't have large debts.
In Greece, new kids on the political block Syrizas, who oppose austerity measures, are moving ahead in opinion polls at the expense of Samara's New Democracy party who are in favour of the bailout plan.
The FT is reporting that some of Europe's biggest fund managers are dumping euro assets amid growing fears over a Greek exit from the eurozone and more euro turmoil. The euro hit a fresh 22-month low at $1.2514 yesterday.