European Union

If the British people take a democratic decision to do something – in this case change the benefit system – they should be able to do so without having the prime minister scuttering around Europe asking permission…

Powered by Guardian.co.ukThis article titled “Democratic decisions on benefits of the EU” was written by Letters, for The Guardian on Tuesday 15th December 2015 19.32 UTC

Zoe Williams misses the point about Cameron’s negotiations with EU member states (There is no master plan. On the EU, Cameron is flailing, 14 December). Restricting benefits to EU migrants may or may not be a sensible, legal or logical way to meet the concerns of people, be they “Ukip-minded” or not. But once our PM had to ask permission to do so, the issue was completely transformed. It is no longer one of EU migrants’ access to benefits, but the far more fundamental question of who decides how British taxpayers’ money is spent. It became a question of national sovereignty. That’s why organisations such Trade Unionists Against the EU are not awaiting the outcome of “negotiations” and are campaigning to get the UK out. The issue is as simple as it is clear: if the British people take a democratic decision to do something – in this case change the benefit system – they should be able to do so without having the prime minister scuttering around Europe asking permission. This will continue to be the case while the UK remains a member of the EU.
Fawzi Ibrahim
Trade Unionists Against the EU

• David Cameron’s negotiations on limiting in-work benefits for EU immigrants appear to have won little support. One simple approach might be to limit levels of benefit to those payable in the country of origin of the European migrant. That would deter those seeking to exploit the system and could disarm politicians in other member states, who would no longer be able to claim that their emigrants were being monetarily disadvantaged. It would leave the fundamental right of freedom of movement untouched.
Ken Daly
Aisholt, Somerset

• Hans Dieter Potsch, the chairman of Volkswagen, glosses over the truth of what his company did to cheat emission tests: it wasn’t a “chain of errors”, it was a chain of liars prepared to sanction a management mindset (VW admits to ‘chain of errors’ at company, 11 December). Or is he not admitting responsibility, even though he is no doubt paid a monstrous salary on the basis of being in charge? This incident just confirms that all companies need active oversight from outside to try and stop such appalling actions. They cannot be trusted any more than managers of banks and other financial groups. This is why we need the EU and strong legislation trying to stop such abuses in companies that think they can do what they like.
David Reed
London

• Join the debate – email guardian.letters@theguardian.com

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USA 

Alexis Tsipras and his party have returned to power with a mandate to govern Greece and implement the bailout deal. Syriza officials said the party would seek to form a stable government immediately with the aim of maintaining confidence in the country…

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How well did Syriza and Alexis Tsipras do?

With 99.5% of the votes counted, Syriza had 35.5% of the vote, easily beating the centre-right New Democracy, the next biggest party on 28.1%. After Tsipras disappointed supporters by accepting a harsh eurozone-led austerity programme finalised in August, leftwingers appeared to be deserting Syriza, with polls showing New Democracy level just two weeks ago. But Syriza will now have 145 seats in the 300-member parliament – just four fewer than when Tsipras took power in January. Its share of the vote is also less than one percentage point down on its 36.3% share in January, although turnout was put at a record low of 55.6%.

What next for Syriza and Alexis Tsipras?

Syriza officials said the party would seek to form a stable government immediately with the aim of maintaining confidence in the country. Its former coalition partner, the small anti-austerity rightwing Independent Greeks party, is ready to use its 10 seats to forge a power-sharing agreement with Syriza. Independent Greeks’ leader, Panos Kammenos, joined Tsipras on stage to celebrate the result. Tsipras claimed the result gave him a mandate to govern and that he intended to serve a full term, promising relief for voters weary from five elections in six years.

Does this change the bailout deal with the EU?

No. Syriza campaigned on a pledge to implement the €86bn (£63bn) bailout, while pledging measures to protect vulnerable groups from some of its effects. In exchange for the bailout funds, Tsipras agreed to deficit-reduction measures including tax rises, changes to pensions and social welfare cuts. Other aspects include labour market reform, liberalisation of consumer markets and fewer perks for civil servants. Tsipras’s first task will be to persuade EU lenders that Greece has taken enough agreed steps to ensure the next payment. The bailout programme is up for review next month.

Could the IMF decline to join the bailout?

Yes. The International Monetary Fund has said it will refuse to take part in the bailout unless there is an “explicit and concrete” agreement on debt relief for Greece. The IMF has argued that Greece cannot bear the full burden of the austerity programme and that its creditors should include debt relief in the package. Without a long moratorium on repayments, perhaps of 30 years, or a reduction in the value of the debt, the burden will become unmanageable, the IMF has argued.

Will Greece need another bailout anyway?

Greece might need another rescue. Tsipras hopes Syriza’s electoral victory will give him renewed clout to negotiate debt relief and less onerous austerity measures from Greece’s creditors. But that stance will not be popular with Germany or European institutions that imposed draconian measures on Greece in the name of fiscal discipline. If Tsipras is unable to extract significant concessions, the economy will remain weak, endangering deficit-reduction targets in the current deal and potentially requiring another bailout to head off a debt default.

What do the markets think?

Reaction in financial markets was muted on Monday morning. The euro was little changed while Britain’s FTSE 100 share index, which has gyrated in the past in reaction to Greek events, rose slightly. The yield on Greek two-year bonds fell a little, meaning traders think the risk of default is reduced. Simon Smith, chief economist at the currency trader FxPro, said: “The immediate impact has been minimal, the single currency opening little changed versus Friday’s opening levels. In the wider picture, it’s not going to make life any easier for the likes of the EU, IMF and European Central Bank and the negotiations surrounding debt sustainability over the coming months.”

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Powered by Guardian.co.ukThis article titled “Greece debt crisis: ECB tightens screw ahead of emergency eurozone summit – as it happened” was written by Graeme Wearden (now), Nick Fletcher, Paul Farrell and Helen Davidson (all earlier), for theguardian.com on Monday 6th July 2015 20.50 UTC

And here’s Tuesday’s Guardian — complete with Yanis Varoufakis leaving the building…

Just one more thing… the front pages of the UK newspapers. And tomorrow’s crunch summit makes the front of the Financial Times:

While Angela Merkel’s hard-ish line on Greece is the splash in the Daily Telegraph:

I wonder what’s on the front page of Tuesday’s Guardian. Stay tuned….

Updated

Closing summary: Last chance for Greek deal looms

We’re been live-blogging the reaction to Sunday’s Greek referendum for around 21 hours now. It’s time to wrap up and give the Guardian web servers a rest.

So, a final recap.

Greece and the eurozone will make one last, desperate attempt to make progress towards an urgently needed bailout deal on Tuesday.

Leaders, and finance ministers, will both hold crucial meetings in Brussels, after Sunday’s referendum result raised the risks of Grexit to new heights. It’s a final chance for Greece to propose a new reform plan that could start the ball rolling towards a new aid package, but the journey looks perilous.

The leaders of France and Germany are scrambling to reach a consensus tonight in Paris, at a top-level meeting about Greece (photos here).

Greece’s prime minister has held telephone calls with the heads of the International Monetary Fund and also the European Central Bank. Alexis Tsipras told Mario Draghi that the capital controls in Greece need to be lifted, but was told by Christine Lagarde that the IMF cannot released more funds now Athens is in arrears.

Earlier, Francois Hollande insisted that there was time to reach a deal. Angela Merkel sounded less optimistic, though, warning that there was currently no basis for an agreement. Press conference highlights start here.

German Chancellor Angela Merkel makes a statement with French President Francois Hollande during a press conference after their meeting at the Elysee Palace on July 06, 2015 in Paris, France. Angela Merkel met Francois Hollande to discuss Greece’s situation in the European Union in a post-referendum environment.

Spain’s PM warned that time was now very short, while Dutch leader Mark Rutte said Greece must accept deep reforms to keep its place in the eurozone.

Analysts aren’t convinced that progress will be made tomorrow….

The European Central Bank has tightened the rules for giving emergency funding to Greek banks tonight. It is now imposing tougher haircuts on the assets they hand over, restricting their ability to access the funding.

The ECB also reportedly rejected a request for €3bn in extra ELA support:

This means Greek banks will remain shut for at least two more days, after capital controls were extended until the end of Wednesday.

Over in Greece, Alexis Tsipras has mobilised the leaders of the main opposition parties to support him. They signed a joint statement, saying Sunday’s referendum showed Greece’s desire for a “socially just and economically sustainable agreement”.

There’s talk of a new mood of national unity, but it could be swiftly shattered.

Tsipras has also passed the honour/poisoned chalice of being Greece’s finance minister to Euclid Tsakalotos, following Yanis Varoufakis’s resignation this morning.

Tsakalotos was sworn in tonight, and will represent Greece at Tuesday’s eurogroup meeting. He’s unlikely to don a tie for the occasion, though. Here’s our profile of Euclid.

Varoufakis has denied tonight that he was a sacrifical lamb, having exited the finance ministry in classic style today:

Outgoing Greek Finance minister Yanis Varoufakis leaves onto his motorcycle with his wife Danai after his resignation at the ministry of Finance in downtown Athens on July 6 2015. Varoufakis resigned in what appeared to be a concession by Prime Minister Alexis Tsipras to international creditors after his resounding victory in a historic bailout referendum. AFP PHOTO / LOUISA GOULIAMAKILOUISA GOULIAMAKI/AFP/Getty Images

In the UK, George Osborne has warned that the risks to the UK are rising. Britain is already providing more consular support in Greece for expats and holidaymakers, and help for businesses struggling to trade with Greek firms.


Video: George Osborne in parliament

And Fitch has warned that the risks of Greece leaving the eurozone are much higher, after last night’s resounding No.

I’ll pop back into the blog if there are any major developments — otherwise, please tune in tomorrow morning for more. Thanks, and goodnight. GW

Updated

Alexis Tsipras has discussed the Greek banking sector’s liquidity issues with ECB president Mario Draghi tonight.

Tsipras also raised the “immediate need” to lift capital controls during the phone call, according to a government spokesman quoted on Reuters.

Our europe editor, Ian Traynor, sums up the situation tonight:

Germany and France scrambled to avoid a major split over Greece on Monday evening as the eurozone delivered a damning verdict on Alexis Tsipras’s landslide referendum victory on Sunday and Angela Merkel demanded that the Greek prime minister put down new proposals to break the deadlock.

As concerns mount that Greek banks will run out of cash and about the damage being inflicted on the country’s economy, hopes for a breakthrough faded. EU leaders voiced despair and descended into recrimination over how to respond to Sunday’s overwhelming rejection of eurozone austerity terms as the price for keeping Greece in the currency.

Tsipras, meanwhile, moved to insure himself against purported eurozone plots to topple him and force regime change by engineering a national consensus of the country’s five mainstream parties behind his negotiating strategy, focused on securing debt relief.

Tsipras also sacrificed his controversial finance minister Yanis Varoufakis, in what was seen as a conciliatory signal towards Greece’s creditors.

In Paris, Chancellor Angela Merkel and President François Hollande tried to plot a common strategy after Greeks returned a resounding no to five years of eurozone-scripted austerity. The two leaders were trying to find a joint approach to the growing crisis ahead of an emergency eurozone summit on Tuesday to deal with the fallout.

But Merkel said there was no current basis for negotiating with the Greek side and called on Tsipras to make the next move.

As eurozone leaders prepared for today’s emergency summit in Brussels , the heads of government were at odds. France, Italy and Spain are impatient for a deal while Germany, the European commission and northern Europe seem content to let Greece stew andallow the euphoria following Sunday’s vote give way to the sobering realities of bank closures, cash shortages and isolation…..

Here’s the full story.

The logo of the International Monetary Fund.

Christine Lagarde spoke to Alexis Tsipras today, and explained that the International Monetary Fund can no longer provide money to Greece after it failed to repay €1.6bn last week.

Under IMF rules, once a country is in arrears, fresh funds cannot be supplied, a spokesman explained (via Reuters)

Hat-tip to Sky News’s Ed Conway for getting into Yanis Varoufakis’s leaving bash tonight and grabbing a quick interview.

Greece’s finance minister denied that he’d sacrificed himself, declaring:

“No, no, this is politics, mate. There are no sacrificial lambs.

Varoufakis added that he’ll rest on Tuesday, but is bound to offer advice from the sidelines.

Tuesday’s edition of the Guardian will carry many letters from readers about the Greek crisis, expressing support for Greece at this time.

Guardian Letters: Athens has reinvented our vision of democracy

Italy’s finance minister has suggested that the eurozone is willing to consider a new aid programme for Greece:

Pier Carlo Padoan told Canale 5 television.

“The 18 (other countries in the euro) are open to re-considering a Greek request which can only be a request for a new programme, not a continuation of the old one,”

Spain’s prime minister Mariano Rajoy has echoed Angela Merkel and Francois Hollande tonight, by warning that time is very short:

Dutch prime minister Mark Rutte has warned Greece it must decide whether it wants to remain in the eurozone, and accept the ‘deep reforms’ needed.

He told MPs tonight that Athens must deliver acceptable proposals to its creditors.

If things stay the way they are, then we’re at an impasse. There is no other choice, they must be ready to accept deep reforms.”

A Greek insider has told Reuters that the European Central Bank hiked the haircut on Greek assets by around 10%, but the impact will be ‘minimal’.

So the ECB hasn’t pulled the plug, yet…..

Updated

Greece Facing Uncertain Future After Rejecting EU Proposals<br />ATHENS, GREECE – JULY 6: People line up at an ATM machine outside a bank on July 6, 2015 in Athens Greece. Politicians in Europe and Greece are planning emergency talks after Greek voters rejected EU proposals to pay back it’s creditors creating an uncertain future for Greece. Finance minister Yanis Varoufakis resigned hours after the vote saying that it was felt his departure would be helpful in finding a solution.. ( Photo by Milos Bicanski/Getty Images)” width=”1000″ height=”600″ class=”gu-image” /><br />
<figcaption> <span class=People line up at an ATM machine outside a bank in Athens today. Photograph: Milos Bicanski/Getty Images

AFP has a good summary of the situation in Greece’s banking sector:

Greek banks to stay closed Tuesday and Wednesday

Greek banks will remain closed on Tuesday and Wednesday with limits on daily withdrawals unchanged, officials said on Monday as the European Central Bank maintained its liquidity assistance to the nation’s beleaguered lenders.

“Until Wednesday evening we continue as things stand today,” said Louka Katseli, chairwoman of the National Bank of Greece.

Speaking on behalf of the association of Greek banks, she added:

“If there is a decision by the European Central Bank in the meantime enabling us to modify this decision, there will be a new decision.”

The European Central Bank’s governing council decided to maintain the emergency liquidity assistance keeping Greek banks afloat at the level set on June 26, the Frankfurt-based bank said in a statement.

But the ECB said it had also “adjusted” the collateral demanded from Greek banks in return for the assistance.

“The financial situation of the Hellenic Republic has an impact on Greek banks since the collateral they use in ELA relies to a significant extent on government-linked assets…

“In this context, the governing council decided today to adjust the haircuts on collateral accepted by the Bank of Greece for ELA,” the ECB added, without specifying the level.

Capital controls were enacted on June 28, limiting ATM withdrawals by Greeks to €60 per account daily after a referendum on bailout terms sparked a run on deposits.

The Bank of Greece had requested an increase in emergency liquidity assistance (ELA) and that request was the subject of the ECB meeting, held a day after 61% of Greeks voted against further austerity measures in Sunday’s plebiscite.

ELA is currently the only source of financing for Greek banks, and therefore the Greek economy. But with Greece’s bailout programme now officially expired and in the absence of any new programme, the conditions for its continuation are no longer met.

But analysts believe the ECB will not want to be the one to pull the plug on Greece and force the country out of the single currency.

Updated

The Euro symbol in Willy Brandt Square, Frankfurt, on the first day of its restoration. The euro symbol will go through a four days restoration, starting on the day after Greece have voted ‘No’ to the EU, the ECB and the IMF policies, generating uncertainties on the monetary sign future. --- Image by © Horacio Villalobos/Corbis
The Euro symbol in Willy Brandt Square, Frankfurt, on the first day of its four-day restoration. Photograph: Horacio Villalobos/Corbis
Euro symbol in Willy Brandt Square, on the first day of its restoration.<br />06 Jul 2015, Frankfurt, Germany — Workers toil on the euro symbol in Willy Brandt Square, Frankfurt, Germany, 06 July 2015, during the first day of its restoration. The euro symbol will go through a four days restoration, starting on the day after Greece have voted ‘No’ to the EU, the ECB and the IMF policies, generating uncertainties on the monetary sign future. — Image by © Horacio Villalobos/Corbis” width=”1000″ height=”667″ class=”gu-image” /> </figure>
</p></div>
<p class=Updated

Two members of the ECB’s governing council pushed for Greece’s banking sector to be hit with even tougher measures, according to Claire Jones of the Financial Times.

She writes:

The ECB refused to disclose the size of the new haircuts, but all four of Greece’s main banks are thought still to have enough collateral available to roll over their emergency loans.

Two people on the governing council objected to the decision, according to Eurosystem sources. Both of the objectors wanted the ECB to take stronger measures.

That implies either an even higher haircut (putting Greek banks in greater peril), lowering the ELA cap (ditto), or terminating ELA off (which would be game over for Greek banks).

The ECB may not have pulled the trigger on Greek banks tonight, but it is reserving the right to take a shot if Tuesday’s emergency summit doesn’t deliver any progress.

Updated

Confused? Try this….

This graph is crucial to understanding what the ECB did tonight.

By raising the haircut applied on assets from Greek banks, it cuts the amount of emergency liquidity that can be handed back in return. Every time the haircut goes up, the ‘value’ of the assets that can be used to access ELA falls.

So, to simplify the issue, each €1bn of Greek assets might have yielded €520m of emergency cash yesterday, but tomorrow it might only be good for €480m, for example (figures plucked out of the air).

Raise the haircut high enough, and Greek banks simply can’t qualify for extra assistance at all.

Updated

The European Central Bank has just raised the risk of a Greek bank going under, argues George Hay, European Financial Editor at Reuters Breakingviews.

ECB hits Greek banks with tougher haircuts

Finally, the European Central Bank has announced its decision on the emergency support it provides to Greek banks.

And the ECB has maintained the cap on emergency liquidity assistance (ELA) at €89bn, but crucially it has “adjusted” the haircuts it applies to the assets which Greek banks hand over in return for funds.

In simple terms, that probably means the ECB is treating Greek government bonds as riskier, and valuing them as such when it calculates how much liquidity it can provide.

It’s another tightening of the screw on Greece – meaning some banks may find it even tougher to qualify for emergency liquidity assistance.

Here’s the full statement:

ELA to Greek banks maintained

The Governing Council of the European Central Bank decided today to maintain the provision of emergency liquidity assistance (ELA) to Greek banks at the level decided on 26 June 2015 after discussing a proposal from the Bank of Greece.

ELA can only be provided against sufficient collateral.

The financial situation of the Hellenic Republic has an impact on Greek banks since the collateral they use in ELA relies to a significant extent on government-linked assets.

In this context, the Governing Council decided today to adjust the haircuts on collateral accepted by the Bank of Greece for ELA.

The Governing Council is closely monitoring the situation in financial markets and the potential implications for the monetary policy stance and for the balance of risks to price stability in the euro area. The Governing Council is determined to use all the instruments available within its mandate.

More reaction to follow…

Updated

Crisis meeting in Paris between French President and German Chancellor<br />epa04834368 French President Francois Hollande and German Chancellor Angela Merkel deliver a speech to the press following a crisis meeting at the Elysee Palace regarding Greece, in Paris, France, 06 July 2015. Speaking after a bilateral meeting in Paris, Hollande drew attention to the fact that ‘time is running out,’ while Merkel said it was up to Greek Prime Minister Alexis Tsipras to come up with proposals on the way forward at the eurozone summit. EPA/ETIENNE LAURENT” width=”1000″ height=”667″ class=”gu-image” /><br />
<figcaption> <span class=Merkel and Hollande tonight. Photograph: Etienne Laurent/EPA

Merkel returns to her favourite theme – that European solidarity and responsibility are linked.

Europe can only hold itself together if each country takes responsibility for itself, she says, insisting that Greece got a generous offer in the past.

Merkel: No basis for negotiations yet

Angela Merkel agrees that the door to talks with Greece is still open, despite yesterday’s No vote.

But Greece must put its proposals on the table this week. As things stand, there is no basis for talks on a new programme under the European Stability Mechanism (ie, a new aid programme)

Hollande also speaks of the values that hold Europe together. It is not just a monetary and finance construction.

Hollande: the door is still open to Greece

Francois Hollande sounds quite conciliatory, telling the audience in Paris that France and Germany respect the vote of the Greek people yesterday.

The door is still open to talks for Alexis Tsipras to make serious proposals.

Tomorrow’s eurozone crisis summit will allow Europe to define its position, based on the Greek proposals, he says, adding that time is running very short.

Updated

Merkel-Hollande press conference

Angela Merkel and Francois Hollande are speaking to the press now, following their talks on the Greek crisis.

Here’s some photos of Euclid Tsakalotos being sworn in as finance minister tonight:

Swearing in of new Greek Finance Minister Euclid Tsakalotos<br />epa04834322 Greek President Prokopis Pavlopoulos (C) and Greek Prime Minister Alexis Tsipras (L) during the swearing-in ceremony of new Greek Finance Minister Euclides Tsakalotos (R) at the Presidential Palace in Athens, Greece, 06 July 2015. Greek voters resoundingly rejected bailout terms in a referendum on 05 July. Athens said it was willing to resume talks with international creditors, and eurozone leaders were planning an emergency summit on 07 July to tackle the crisis. EPA/ARMANDO BABANI” width=”1000″ height=”667″ class=”gu-image” /><br />
<figcaption> <span class=Greek President Prokopis Pavlopoulos (centre) and Greek Prime Minister Alexis Tsipras (left) during the swearing-in ceremony of new Greek Finance Minister Euclides Tsakalotos (right). Photograph: Armando Babani/EPA
Swearing in of new Greek Finance Minister Euclid Tsakalotos<br />epa04834287 New Greek Finance Minister Euclides Tsakalotos during his swearing-in ceremony at the Presidential Palace in Athens, Greece, 06 July 2015. Greek voters resoundingly rejected bailout terms in a referendum on 05 July. Athens said it was willing to resume talks with international creditors, and eurozone leaders were planning an emergency summit on 07 July to tackle the crisis. EPA/ARMANDO BABANI” width=”831″ height=”1000″ class=”gu-image” /> </figure>
<figure class= Prokopis Pavlopoulos, Euclid Tsakalotos<br />Greek President Prokopis Pavlopoulos, left, shakes hands with the new Greek Finance Minister Euclid Tsakalotos during the swearing in ceremony at Presidential Palace in Athens, Monday, July 6, 2015. Following Sunday’s referendum the Greece and its membership in Europe’s joint currency faced an uncertain future Monday, with the country under pressure to restart bailout talks with creditors as soon as possible after Greeks resoundingly rejected the notion of more austerity in exchange for aid. (AP Photo/Petros Karadjias)” width=”1000″ height=”600″ class=”gu-image” /><br />
<figcaption> <span class= Photograph: Petros Karadjias/AP

Tsakalotos has an engagingly dressed-down style, even for a member of the current Greek government (frankly, he could pass for a eurocrisis liveblogger).

But he did make one concession to the majesty of the occasion…..

The US government has urged Europe and Greece to seek a compromise that will avoid Grexit.

White House spokesman Josh Earnest said it was in the best interests of America, and Europe, that the Greek crisis is solved. It is a “European challenge to solve”, he added.

Here’s a video clip of UK finance minister George Osborne updating the British parliament on the Greek crisis today:


Video: Greece referendum: government will protect UK economy, says George Osborne

Osborne has been criticised for not backing calls for Greece to be given debt relief.

Jonathan Stevenson, campaigns officer at the Jubilee Debt Campaign, said:

“The Chancellor was today given several opportunities by MPs from all parties to add his voice to calls for Greek debt cancellation, but he refused to take it. By sitting on the fence, rather than making the case for debt cancellation, he is failing to use his influence to help resolve this crisis, and thereby selling the people of Britain short.

The French stock market suffered from the Greek crisis today, with the CAC index shedding 2%.

Germany’s DAX fell by 1.5%, while in London the FTSE 100 index fell 50 points of 0.7%.

So, electronic red ink everywhere – but not a really serious selloff, given the scale of the shock last night when the referendum results came through.

Tsakalotos sworn in as finance minister

The deed is done. Euclid Tsakalotos has just been sworn in as the new Greek finance minister, by president Prokopis Pavlopoulos.

Updated

This Google Trends data shows how Greeks have been searching for information on leaving the eurozone, and on the implication of yesterday’s referendum:

Google Trends
Photograph: Google
Google Trends
Photograph: Google

Updated

Photos: Merkel and Hollande begin Greek talks

Over in Paris, Francois Hollande has welcomed Angela Merkel to the Elysee Palace for crisis talks about Greece, following yesterday’s referendum.

After a brief smile for the camera, they swiftly got down to business. We’re expecting a joint statement from the two leaders before dinner.

French President Francois Hollande welcomes German Chancellor Angela Merkel before talks and a dinner at the Elysee Palace in Paris
French President Francois Hollande welcomes German Chancellor Angela Merkel before talks and a dinner at the Elysee Palace in Paris Photograph: Philippe Wojazer/Reuters
Crisis meeting in Paris between French President and German Chancellor<br />epa04834201 German Chancellor Angela Merkel (2-L) attends a crisis meeting with French President Francois Hollande (unseen) at the Elysee Palace regarding Greece, in Paris, France, 06 July 2015. The leaders met for talks on Greece in the aftermath of the referendum. EPA/ETIENNE LAURENT / POOL MAXPPP OUT” width=”1000″ height=”667″ class=”gu-image” /><br />
<figcaption> <span class= Photograph: ETIENNE LAURENT / POOL/EPA
Crisis meeting in Paris between French President and German Chancellor
Photograph: ETIENNE LAURENT / POOL/EPA

German finance minister Wolfgang Schäuble has insisted that it didn’t have any “personal problems” with Yanis Varoufakis, Greece’s former finance minister.

But it is true that the other euro finance ministers didn’t share Varoufakis’s opinion on many points, Schäuble added.

(that’s via Associated Press)

Here’s Reuters first take on the news that Greek banks won’t reopen tomorrow:

Greek banks will remain closed on Tuesday and Wednesday and a daily limit on cash withdrawals will stay at €60, the head of the Greek banking association said.

Greek banks were shuttered all last week after the collapse of negotiations on an aid deal and had officially been due to reopen on Tuesday, before Greeks voted resoundingly to reject bailout terms sought by creditors in a referendum on Sunday.

“We decided to extend the bank holiday by two days – Tuesday and Wednesday,” Louka Katseli said after a meeting with finance ministry and banking representatives.

GREECE-ATHENS-BAILOUT<br />06 Jul 2015, Athens, Attica, Greece — (150706) — ATHENS, July 6, 2015 (Xinhua) — Greek pensioners without bank cards line up outside bank to withdraw up to 120 euros for the week, in Athens, July 6, 2015. Greek President Prokopis Pavlopoulos convened political leaders for a meeting to design new strategy after the no victory in the July 5 referendum on bailout terms. (Xinhua/Marios Lolos) (dzl) — Image by © Marios Lolos/Xinhua Press/Corbis” width=”1000″ height=”667″ class=”gu-image” /><br />
<figcaption> <span class=Greek pensioners without bank cards line up outside bank to withdraw up to 120 euros for the week, in Athens today. Photograph: Marios Lolos/Xinhua Press/Corbis

Who is Euclid Tsakalotos anyway?

File photo of Varoufakis and Tsakalotos leaving the Maximos Mansion after a meeting with PM Tsipras in Athens<br />Greek Finance Minister Yanis Varoufakis (front) and deputy minister for international economic relations Euclid Tsakalotos leave the Maximos Mansion after a meeting with Prime Minister Alexis Tsipras (not pictured) in Athens in this April 3, 2015 file photo. Tsakalotos will be sworn in as finance minister on July 6, 2015 after the resignation of Varoufakis, a Greek presidency source said. REUTERS/Alkis Konstantinidis/Files” width=”1000″ height=”667″ class=”gu-image” /><br />
<figcaption> <span class=Euclid Tsakalotos isn’t in the back seat any more…. Photograph: Alkis Konstantinidis / Reuter/Reuters

Last month, our Athens correspondent Helena Smith explained how the “Phlegmatic, professorial, mild-mannered” Euclid Tsakalotos could be the key to reaching a breakthrough in the Greek crisis.

And as Tsakalotos is Greece’s new finance minister, this theory is about to be tested…..

Here’s a flavour:

The son of a civil engineer who worked in the well-heeled world of Greek shipping, Tsakalotos was born in Rotterdam in 1960. When his family relocated to London, he was immediately enrolled at the exclusive London private school St Paul’s. A place at Oxford, where he studied PPE, ensued. The hurly burly world of radical left politics could not have been further away.

“My grandfather’s cousin was general Thrasyvoulos Tsakalotos who led the other side, the wrong side, in the Greek civil war,” he said of the bloody conflict that pitted communists against rightists between 1946-49.

“He expressed the fear that I might end up as a liberal, certainly not anything further to the left”…

Perish the thought…

Here’s the full piece:

The risk of Greece sliding towards a disorderly exit from the eurozone has “dramatically” increased following the No vote in last night’s referendum.

So warns rating agency Fitch tonight:

An agreement between Greece and its official creditors remains possible, but time is short and the risk of policy missteps, or that the two sides simply cannot agree a deal, is high.

Fitch adds that it will be “difficult” to reaching a deal before 20 July, when Greece must repay €3.5bn to the ECB.

New finance minister to be sworn in tonight.

(FILES) In this file picture taken on June 15, 2015 Greek minister of International Economic Relations Euclidis Tsakalotos arrives for a meeting at the Prime minister’s office in Athens. Greece on July 6, 2015 named economist Euclid Tsakalotos, its top negotiator in the stalled EU-IMF talks, as the country’s new finance minister, the president’s office said. AFP PHOTO / ARIS MESSINISARIS MESSINIS/AFP/Getty Images
Photograph: Aris Messinis/AFP/Getty Images

The Greek government has announced that the new finance minister, Euclid Tsakalotos, will be sworn in by the Greek president at 8pm this evening (6pm BST).

This will allow the Oxford-educated economist to attend tomorrow’s eurogroup meeting and present Greece’s case.

And his first task will be to approve a two-day extension to Greece’s capital controls, meaning banks stay shut until Thursday:

Updated

Greek banks to stay shut

Newsflash: Greece’s banks will not reopen on Tuesday, or indeed on Wednesday, according to the head of the Greek bank association.

The daily withdrawal limit remains at €60.

A couple more lines from George Osborne’s statement to parliament on Greece.

He tells MPs that Britain has sent tax officials out on secondment in recent years, to assist with revenue collection.

Unfortunately, tax collection has “almost dried up” since the crisis escalated.

And the chancellor says Britain can’t suspend pension payments to expats in Greece, to protect them from capital controls. That would risk triggering financial problems, if people had set up rent payments, and suchlike.

And the worst thing for Britain, and the world, would be a completely disorderly situation in the next few weeks. That’s why we are urging all sides to reach a solution.

(FILES) In this file picture taken on March 7, 2015 guest speaker Euclid Tsakalotos of Greek Syriza party addresses the Republican party Sinn Fein annual conference in Londonderry, Northern Ireland. Greece on July 6, 2015 named economist Euclid Tsakalotos, its top negotiator in the stalled EU-IMF talks, as the country’s new finance minister, the president’s office said. AFP PHOTO / PAUL FAITHPAUL FAITH/AFP/Getty Images
Back in March, Euclid Tsakalotos addressed the Republican party Sinn Fein annual conference in Londonderry, Northern Ireland. Photograph: Paul Faith/AFP/Getty Images

Back in Greece, Euclid Tsakalotos is being appointed as Greece’s new finance minister to replace Yanis Varoufakis, as had been rumoured.

One official told Reuters:

“Tsakalotos will be sworn in with the political oath as finance minister,”

As mentioned earlier, Tsakalotos is known as the brain behind Syriza’s economics policies, and has been handling the day-to-day negotiations with creditors for the last couple of months.

Updated

Labour MP Gisela Stuart asks:

Does Britain have any plans to fly euros into Greece to pay our pensioners, if they cannot get money out of the cash machines?

Osborne says that Britain has “a number of contingency plans, and we just hope we don’t have to put them into operation.”

Two years ago, when Cyprus imposed capital controls, Britain flew out large quantities of euros in military planes to pay soldiers based in the country.

Andrew Tyrie, a senior MP who chairs Britain’s influential Treasury Committee, asks George Osborne if he agrees that Greece can never repay all its debt, or return to sustainable growth at the current eurozone exchange rate.

Shouldn’t Greece issue its own currency?

Osborne won’t be tempted to give an opinion. We don’t like it when other counties tell Britain what currency to use, so it’s up to Greece to decide its own currency.

But, the challenge is balancing Greece’s desire to stay in the euro with the conditions that other eurozone members wish to put on it, he adds.

Osborne sums up the challenge facing Greece rather neatly.

There are two different timetables, the chancellor says — the political one, of meetings and negotiations to reach a possible deal, which proceeds quite slowly.

And there is the situation in the Greek banking sector, which is moving at a much faster pace.

The challenge for the eurozone and the challenge for greece is to bring those timetables together.

George Osborne says that tomorrow’s eurogroup and eurozone leaders meetings are crucial for Greece, although tonight’s Franco-German meeting (between Merkel and Hollande) is also important.

Chris Leslie, the shadow chancellor, warns that the European Union faces its most “fundamental test” in a generation.

George Osborne
George Osborne in parliament today Photograph: BBC Parliament

Osborne: Risks to Britain from Greece are growing

George Osborne, Britain’s chancellor of the Exchequer, is speaking in parliament now.

He met with prime minister David Cameron and Bank of England governor Mark Carney earlier today.

Osborne warns MPs that the prospects of a happy ending in Greece are diminishing, while the risks to Britain from Greece are growing, so it’s right to remain vigilant.

The financial situation in Greece will “deteriorate rapidly” if there is no sign of agreement at tomorrow’s talks.

Osborne says:

This is a critical moment in the economic crisis in Greece. No-one should be under any illusions. The situation risks going from bad to worse…

Osborne tells MPs that the UK government will continue to pay state pensions to expats in Greece “in the normal way” , but also warns that tourists should take sufficient money, and medicines, to cover their stay.

The government has already been in touch with 2,000 pensioners to help them switch to UK bank accounts.

The Department for Business is providing advice to firms having problems dealing with companies in Greece, he adds.

And Britain is boosting its consular operations in Greece.

Updated

With his duties at the finance ministry over, Yanis Yaroufakis can now turn his attention to more mundane issues – like his new book.

Greek Prime Minister Alexis Tsipras (C) Minister of State Nikos Pappas (L) and Government spokesman Gavriil Sakellaridis (2-R) leave the Presidential Palace after a meeting with party leaders in Athens on July 6, 2015. Germany dismissed Greece’s bid to clinch a quick, new debt deal after the country delivered a resounding ‘No’ to more austerity measures, appearing little moved by the surprise resignation of the Greek finance minister.IAKOVOS HATZISTAVROU/AFP/Getty Images
Greek Prime Minister Alexis Tsipras (C) Minister of State Nikos Pappas (left) and Government spokesman Gabriel Sakellaridis (second right) leaving the Presidential Palace after a meeting with party leaders in Athens today. Photograph: Iakovos Hatzistavrou/AFP/Getty Images

What does yesterday’s No vote mean for Europe? How can Angela Merkel respond? Will the departure of Yanis Varoufakis help?

Guardian columnist Jonathan Freedland and economics editor Larry Elliott explain all, in barely 180 seconds…..


Video: Three-minute update: the Greeks have spoken. What now for the rest of Europe?

German media are reporting that Alexis Tsipras and Angela Merkel have telephoned (as we flagged earlier), with both leaders agreeing that Greece will bring new proposals with him to the Euro group meeting which may help to overcome the crisis.

Further details of what they discussed have yet to emerge.

Also, a Spiegel correspondent in Greece, Giorgis Christides, is reporting that paper supplies are running out in Greece, with newspaper publishers saying they had enough paper left to print only up until next Sunday.

One publishing manager has even proposed halting the printing of books, until the shortage eases.

IMF "stands ready to assist Greece"

Lagarde sits for an interview at IMF headquarters in Washington.
Photograph: Jonathan Ernst/Reuters

Christine Lagarde, Managing Director of the International Monetary Fund (IMF), has just issued a short statement on Greece:

“The IMF has taken note of yesterday’s referendum held in Greece. We are monitoring the situation closely and stand ready to assist Greece if requested to do so.”

Snap reaction: Greece heading towards national unity?

The fact that the leaders of three Greek opposition parties have agreed to back prime minister Alexis Tsipras in the debt negotiations is an important development.

The strong No vote in Sunday’s referendum has strengthened Tsipras’s position, as he heads to Brussels tomorrow.

As well as representing his Syriza-ANEL administration, Tsipras now has the backing of New Democracy, To Potami and Pasok.

That only leaves the KKE communist party on the sidelines, and the extreme right-wing Golden Dawn.

Commentators reckon it could be the first step towards a new ‘national unity’ administration to tackle the crisis.

UK chancellor George Osborne due to address the UK parliament on the Greek situation shortly. My colleague Andrew Sparrow is covering it all in his politics liveblog.

The centre-left Pasok party has also agreed to back Alexis Tsipras in the looming debt negotiations.

Fofi Genimata, Pasok’s leader, did criticise the PM for only rallying support “at the eleventh hour”.

New Democracy, the centre-right opposition party, will also sign the common statement expressing support for Alexis Tsipras in negotiations with lenders.

ND was represented by Vangelis Meimaraki at today’s meeting, following the resignation of leader Antonis Samaras last night.

Meimaraki criticised Tsipras for calling today’s meeting so late, and said the PM bears responsibility for the crisis. But crucially, he did still sign the statement:

Ah, it appears that the communist KKE party will not support this joint statement from Greece’s political leaders:

(that’s Kammenos in the middle)

Greek political leaders to release joint statement

The meeting of Greece’s political leaders is breaking up in Athens, after more than six hours.

And Panos Kammenos, the head of the right-wing ANEL party which is coalition with Alexis Tsiprass’ Syriza, is telling reporters that the leaders will release a “joint statement”.

That will be a written assurance that the opposition leaders support Tsipras in his negotiations with creditors, Kammenos says – along with a reference to debt relief.

Stavros Theodorakis of the centrist To Potami party is also speaking. He confirms that a common statement will be drawn up. ahead of Tuesday’s emergency eurozone summit.

Updated

US stock markets have opened after the July 4 holiday long weekend and so far reaction to the Greek crisis is muted.

The Dow, S&P 500 and Nasdaq are all down around 0.5% in early trading.

So far US investors have largely shrugged off the Greek crisis and it looks like they same mood will prevail today. But anything can happen. During the last Euro-crisis US markets went on a roller coaster ride as investors worried about “contagion” and Greek woes spreading across Europe.

Yanis, we’re going to miss you

Alexis Tsipras must bring serious proposals to Brussels tomorrow to tackle the crisis created by his referendum, says German MEP Manfred Weber.

Weber, who chairs the centre-right EPP Group in the European Parliament, has also tweeted his concern that the “No” victory will drive nationalism in Europe.

The heads of Greece’s political parties are still meeting with president Pavlopoulos, as they discuss their response to Sunday’s referendum.

Simon Marks of MNI is tweeting from outside the talks:

Yanis Varoufakis does know how to make an exit (if not a Grexit)…..

Greece’s maverick finance minister Yanis Varoufakis, who announced his surprise resignation leaves the Ministry of Finance with his wife Danai on the back of a motorbike in downtown Athens, on July 6 2015. Germany dismissed Greece’s bid to clinch a quick new debt deal after the country delivered a resounding ‘No’ to more austerity, appearing little moved by the surprise resignation of the Greek finance minister. AFP PHOTO / ANDREAS SOLAROANDREAS SOLARO/AFP/Getty Images
Greece’s maverick finance minister Yanis Varoufakis, who announced his surprise resignation leaves the Ministry of Finance with his wife Danae on the back of a motorbike in downtown Athens. Photograph: Andreas Solaro/AFP/Getty Images
Greece’s maverick finance minister Yanis Varoufakis, who announced his surprise resignation leaves the Ministry of Finance with his wife Danai on the back of a motorbike in downtown Athens, on July 6 2015.
Photograph: Andreas Solaro/AFP/Getty Images

Updated

Bank closures could continue for a few more days – report

BREAKING:

Greece will issue a new decree today to extend the bank holiday for a few more days, bankers are telling Reuters.

Greece to present new proposals on Tuesday

Sigmar Gabriel’s warning that Greece faces insolvency came as Alexis Tsipras and Angela Merkel ended their telephone call.

Greek officials say that Tsipras agreed to present a “comprehensive” Greek proposal for an aid deal at Tuesday’s emergency leaders summit.

Updated

Germany’s vice chancellor is warning that a third Greek bailout would include taxing conditions, as it would be issued under the European Stability Mechanism:

Gabriel is also worried that other bailed-out eurozone nations will demand help, if they see Greece getting relief:

Greece threatened with insolvency, says Germany’s Gabriel

The hard line from Germany continues.

Deputy chancellor and economy minister Sigmar Gabriel has said Greece is now threatened with insolvency. And if it wants to stay in the eurozone it has to present proposals that go beyond what it has offered before.

Yanis Varoufakis says he hopes Euclid Tsakalotos gets the hot seat in the finance ministry.

Euclid does have decent credentials; a PhD in economics from Oxford, followed by academic postings, and a reputation as the “big brain” of Syriza’s economic policy making.

Standard Chartered has already said his appointment would make a positive outcome more likely (see here)

And he’ll have lots to talk to the UK chancellor about, too:

Updated

The Kremlin has issued a brief statement on the telephone call between Greek prime minister Alexis Tsipras and Russian President Vladimir Putin:

On Greece’s initiative, Vladimir Putin had a telephone conversation with Prime Minister of Greece Alexis Tsipras.

Mr Putin and Mr Tsipras discussed the results of the Greek referendum on international creditors’ conditions for providing financial aid to Athens, and discussed several matters concerning further development of bilateral cooperation.

Mr Putin expressed his support for the Greek people in overcoming the country’s current difficulties.

Was it the Daily Telegraph that did it?

The Wall Street Journal has an intriguing theory to explain Yanis Varoufakis’s shock resignation this morning.

They say that Alexis Tsipras decided to jettison his finance minister after he told the Telegraph that Greece could start issuing its own IOU notes to run alongside the euro, if the liquidity squeeze choking Greece isn’t lifted.

Here’s that interview:

Daily Telegraph: Defiant Greeks reject EU demands as Syriza readies IOU currency

Lunchtime summary

Greek Prime Minister Alexis Tsipras, second from right, arrives for a Greek political leaders meeting in Athens this morning.
Greek Prime Minister Alexis Tsipras, second from right, arrives for a Greek political leaders meeting in Athens this morning. Photograph: Petros Giannakouris/AP

Time for a recap.

Yanis Varoufakis has ended a dramatic five-month stint as Greece’s finance minister, resigning just hours after Greece delivered a resounding No to the bailout conditions pushed by the country’s creditors.

Varoufakis said he fell on his sword after being:

made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my … ‘absence’ from its meetings.

And he remained resolute to the end, declaring:

I shall wear the creditors’ loathing with pride.

He also hailed last night’s referendum results as “a unique moment when a small European nation rose up against debt-bondage.”

His successor hasn’t been announced yet; Euclid Tsakalotos, who took over day-to-day management of negotiations, is one frontrunner.

Greek leaders have been locked in talks for hours this morning, discussing their next move.

Prime minister Alexis Tsipras has been busy – he’s speaking with German chancellor Angela Merkel right now.

Earlier, he held a phone call with Russian president Vladimir Putin.

The scale of yesterday’s No vote has stunned Europe this morning, as leaders prepare for Tuesday’s emergency summit.

Italy’s Matteo Renzi has just posted on Facebook that Europe must find permanent solution to the Greek crisis and go beyond austerity.

But European Commission vice-president Valdis Dombrovskis has warned that the No vote makes the situation even more complicated.

Angela Merkel and Francois Hollande are due to meet tonight in Paris to discuss the crisis. UK prime minister David Cameron has already held a meeting in London to discuss the impact on Britain response.

The Greek banking system continues to creak after a week of capital controls; some ATM machines are now only dispensing €50 per day, rather than the €60 limit.

The European Central Bank will hold a conference call later to discuss the emergency liquidity assistance it provides to Greece, which was capped eight days ago.

In the European markets, shares have fallen as the threat of a disorderly Grexit rises.

Here’s the situation at lunchtime in the City:

  • FTSE 100: down 40 points at 6545, -0.6%
  • German DAX: down 170 points at 10890, -1.5%
  • French CAC: down 89 points at 4718, -1.9%

The yields (interest rates) on Spanish and Italian government bonds have risen today, as investors view them as riskier. But it’s not a massive sell-off (the yield on Spanish 10-year debt has risen from 2.22% to 2.35% this morning)

Jens Nordvig of Japanese bank Nomura argues:

Those betting on run-away contagion as a result of Greece getting on an exit path will have to re-think….

The so-called domino theory is looking increasingly old-fashioned.

Meanwhile Rosie Scammell has helpfully done a translation of the comments from Italian prime minister Matteo Renzi on his Facebook page.

There are two areas…to confront quickly in European capitals and Brussels. The first regards Greece, a country that is in a very difficult economic and social situation. The meetings tomorrow must indicate a definitive road to resolve this emergency.

The second – even more fascinating and complex, but no longer postponable – is that of Europe. For months we have been insisting on discussing not only austerity and budgets, but growth, infrastructure, common policies on migration, innovation, the environment. In one word: politics, not only parameters. Values, not only numbers.

If we stay at a standstill, prisoners of rules and bureaucracy, Europe is finished.

Rebuilding a different Europe will not be easy, after what has happened in recent years. But this is the right moment to try and do it, all together. Italy will do its part.

The downbeat comments about the prospects of a new deal with Greece, notably from Germany and the European Commission’s Valdis Dombrovskis, have seen the euro lose nearly all the gains it made after news came in of Yanis Varoufakis’ resignation as Greek finance minister.

Euro midday
Euro loses early gains against the dollar. Photograph: Reuters/Reuters

And here’s AP’s summary of the earlier comments from Angela Merkel’s spokesman about the conditions not being there for new negotiations with Greece:

Chancellor Angela Merkel’s spokesman says Germany sees no basis at present for entering negotiations on a new bailout program for Greece, but that the door remains open.

Steffen Seibert said Monday that Germany respects the “clear ‘no’ vote” by Greeks against austerity measures demanded by creditors and that “the door for talks always remains open.”

However, he said the conditions are “not there at present to enter negotiations on a new program.” He said the “no” vote is a vote against the principle still supported by Germany that solidarity requires countries to take responsibility.

Seibert says Europe will explore what possibilities there are to help Greek citizens and “a lot will depend on what proposals the Greek government now puts on the table.”

Merkel arrives at the chancellery in Berlin this morning.
Merkel arrives at the chancellery in Berlin this morning. Photograph: Fabrizio Bensch/REUTERS

Greek debt reduction not on Germany’s agenda

Following the downbeat comments earlier from German government spokesman Steffen Seibert, the country’s finance ministry has now said a reduction in Greece’s debt mountain is not on Germany’s agenda. Associated Press reports:

Ministry spokesman Martin Jaeger said “our position is well-known … a debt cut is not an issue for us.”

He said there were no grounds for a debt restructuring given that Greece has yet to set out fresh proposals for financial aid.

Last week, the International Monetary Fund, which has been a major creditor of Greece over the past five years, suggested that debt relief for Greece is necessary.

Jaeger says Europe decided that economic reforms coupled with aid was a better route to a sustainable future for Greece, adding that it was working well in the country, until the end of last year.

Jaeger said he didn’t see much need to change this approach, noting the success of other bailed-out countries.

Italy’s Renzi says permanent solution must be found

Another sign we’re in the age of social media dominance: Italian prime minister Matteo Renzi has said Europe must find a permanent solution to the Greek crisis – via a Facebook post.

(Greek finance minister Yanis Varoufakis earlier announced his resignation by Twitter/blog)

Speaking of Russia, the country has said Greece and its creditors should reach a compromise as soon as possible. Bloomberg reports it is watching developments “closely” following the referendum:

“We treat with respect the voice raised during the plebiscite,” Kremlin spokesman Dmitry Peskov told reporters on a conference call on Monday. Russia would like Greece to take decisions that contribute to “social and economical stability in the country,” he said.

Greece has never asked Russia for financial aid in dealing with the debt crisis, Peskov said. Greek issues might be discussed on the sidelines of a BRICS summit in Ufa this week of leaders from Brazil, Russia, India, China and South Africa, though they are not on the official agenda, he said.

Full story here.

And this meeting of Greek party leaders may never end….

Helena Smith adds:

Reports now coming through that Tsipras has broken away from meeting with other party leaders to talk with German chancellor Angela Merkel.

Greek television channels have been breaking into scheduled programmes to announce that prime minister Alexis Tsipras will cut short the meeting currently taking place of political party leaders at the presidential palace to speak with Russia’s Vladimir Putin, reports Helena Smith. (We mentioned this possiblity earlier). Helena writes:

The two men will speak by phone. The cross party meeting of political leaders will then resume.

Interestingly, says, Helena, the Greek energy minister, Panagiotis Lafazanis, who has close ties with Moscow and heads the militant wing of Tsipras’ Syriza party, has also rushed to the presidential palace.

Tsipras and Putin in June
Tsipras and Putin in June Photograph: TASS / Barcroft Media/TASS / Barcroft Media

Meanwhile in Thessaloniki, people are hoping the no vote will prompt a resolution, finally, to the financial crisis. Angelique Chrisafis reports:

Stefanos Dimos was standing at his Thessaloniki flower shop, which for 62 years has been arranging bouquets to mark the births, deaths and weddings of locals in Greece’s second city. He had been weathering the crisis for five years, but this morning, after Greece’s resounding no vote, he said he felt optimistic.

In five years of austerity, Dimos had seen his trade fall by 50% and had to lay off two staff. Since last week the capital controls and bank closures that are still in place have seen his trade drop 90%, despite the summer wedding season. “The economy has virtually stopped,” he said. But like many “No” voters, Dimos, 52, held the prime minisiter Alexis Tsipiras to his word that there would be a new negotiation and a better deal for Greece. “We’re optimistic that there will be an agreement that is good for Greece and good for Europe. The “No” vote was a good result because it sent a clear message that we can’t have any more austerity. I see people foraging in bins here every day for food, something that didn’t happen before the crisis.”

He added: “We’re hoping that the deal will be improved, that debt will be eased, allowing business activity to start up again. Things have ground to a halt.”

Another florist in the city centre said he was happy with last night’s strong “No” result, even though he himself had tentatively voted “Yes”. He said: “I voted yes because I wanted Greece to stay in Europe. But I’m still pleased today because — like everyone else — I don’t want more austerity. I’m happy with the outcome as it voiced our feeling that we can’t take it any more. Austerity has been a dead-end for growth and for our economy.”

Outside a nearby bank, a small queue of pensioners gathered early to access limited amounts to their pensions, and a small line of others waited to withdraw their daily €60. One lawyer who had voted yes said: “There’s an urgency in getting a new deal as fast as possible because banks are facing a real liquidity problem, they can’t last much longer. Any new deal now has to satisfy all the other eurozone members, it’s not going to be easy. In fact, it’s going to be very difficult here.”

Constantin Petropoulous, 88, and his wife Georgia, 80, were standing at the back of the queue, waiting to access a portion of their monthly pensions that had shrunk to €600. Like many in the city, they had spent decades as labourers in Germany, where Constantin had worked for Bosch in Stuttgart, returing to Thessaloniki to later work in a shop. “The real challenge for Greece this week is this feeling of the unknown, the uncertainty,” he said. “Whether the vote had been yes or no, things would have been difficult. We know it will be a very hard week. We just have to be patient.”

The European Central Bank’s governing council is due to discuss emergency funding to Greek banks in a telephone call later this afternoon, sources have told Reuters.

In Athens, cash machines are increasingly failing to dispense the full amount allowed under the current capital controls. John Hooper reports:

A tour of banks in the capital this morning showed that, while depositors are notionally allowed €60 a day under the capital controls, increasingly €50 is the norm. That could help explain why the government is reportedly confident that Greece’s ATMs can continue to dole out cash till Friday.

Of seven cash machines visited, only two were dispensing the full amount, ostensibly because the banks are running out of €20 notes. At Alpha Bank on Alexandras Avenue, Irene Abatzi said: “I don’t care if it’s fifty or sixty, just so long as the machine carries on giving out cash.”

A woman withdraws money from an ATM machine while others speak to an official of the bank in Athens.
A woman withdraws money from an ATM machine while others speak to an official of the bank in Athens. Photograph: Louisa Gouliamaki/AFP/Getty Images

Elsewhere, customers were less phlegmatic. A man in the up-market quarter of Kolonaki exploded with rage when he found out that a payment had not been made to his account, and that he could not withdraw anything.

The banks were opening their doors to pensioners, but in at least two parts of the city the pensioners were being told that only those who failed to get their pensions last week could be served. The deputy finance minister, Nadia Valavani, highlighted the intensity of the cash squeeze in a statement on Sunday, telling safe deposit owners they could retrieve valuables – but only with a bank employee standing over them to ensure they did not take out cash as well.

In Spain Pablo Iglesias, leader of the anti-austerity party Podemos, welcomed the results of the Greek referendum but cautioned those who sought to draw parallels between Spain and Greece. Ashifa Kassam in Madrid reports:

“It’s a very clear message,” Iglesias told Spanish radio Cadena Ser. “The citizens of Greece have said that austerity isn’t the way to end the economic crisis.”

He called on Europe’s leaders to reach an agreement with Greece, pointing to the resignation of Greek finance minister Yanis Varoufakis. “Now there is no excuse. The time has come for sensibility and to find a reasonable agreement.”

On Varoufakis’ resignation he said: “It hurt me a lot because I think he’s an excellent economist….but I think the act of resigning is honorable as it will help the push for the agreement that his country needs.”

With a general election due in Spain by the end of the year, Iglesias carefully chose his words, knowing that the situation in Greece could drive moderate voters away from his party. “We have a great friendship with Syriza, but luckily, Spain is not Greece. We’re an economy with much more weight in the eurozone, we’re a country with a stronger administration and with a better economic situation,” he said, taking aim at the many comparisons being drawn between Spain and Greece. “The circumstances are different and I think it makes no sense to draw these parallels.”

Podemos leader Pablo Iglesias.
Podemos leader Pablo Iglesias. Photograph: Susana Vera/Reuters

The situation in Greece has been used by the governing People’s Party to justify the austerity measures imposed during the height of the economic crisis. “Fortunately Spain has a prime minister who said no to the bailout and instead undertook reforms,” PP vice-president Fernando Martínez-Maillo told broadcaster Radio Nacional de España on Monday. “Thanks to those reforms…we’re in a situation of economic growth and job creation.”

Spain’s finance minister, Luis de Guindos said on Monday that although the No vote made the situation more complex, everyone wants Greece to “stay in the euro.” His government is ready to talk about a third bailout, he added, but only if Greece was willing to play by the rules.

Eleni Varvitsiotis of Greek newspaper Kathimerini is not very upbeat about Dombrovskis:

More from Dombrovskis:

EC’s Dombrovskis says no vote complicates things

European Commissioner vice president Valdis Dombrovskis has said the no vote complicates the situation, but Greece’s place remains in the eurozone.

My colleague Jennifer Rankin notes:

Updated

Britain has called on Greece and its eurozone partners to sit down together and find a sustainable solution, Reuters reports.

Prime minister David Cameron’ spokeswoman said finding a solution was clearly in Britain’s best interests, and Britain supports a 28 member EU.

Meanwhile the ECB’s Ewald Nowotny, also president of the National Bank of Austria, said any new Greek deal needs time. To expect an agreement within two days – as Greece had suggested – is “illusionary.”

And regarding the emergency liquidity assistance for Greek banks:

Greek prime minister Alexis Tsipras has reportedly already been on the phone to European Central Bank president Mario Draghi – not surprising when the ECB has to decide its next move with regard to Greek banks.

Meanwhile Tsipras will apparently also speak to Russian president Putin on the phone before the end of the day.

And here’s a bit of a dampener on things, from Austria’s Finance Minister Hans Joerg Schelling:

But he did say he hopes talks would be easier now Varoufakis has gone.

Updated

What happens next?

So what happens next, for Greece’s bailout negotiations, the country’s banks, its future in the eurozone? Here is our updated assessment of where we stand:

And as a tribute to Yanis Varoufakis brief but colourful period as Greek finance minister, here is a piece of video from 1993. As an economics professor he was discussing government policies and, topically, austerity.

Varoufakis
Varoufakis in 1993 Photograph: Greek TV via Youtube

Spain’s economy minister Luis de Guindos has echoed that Greece should remain part of the eurozone and the euro is irreversible.

He said the Spanish government was open to negotiating a third bailout, and any new Greek package should include a comprehensive analysis of Greek needs.

(Quotes courtesy Reuters).

Luis de Guindos.
Luis de Guindos. Photograph: Andrea Comas/Reuters

Angela Merkel’s spokesman say conditions for Greek talks not in place

Conditions for talks with Greece are not in place, German government spokesman Steffen Seibert has said.

But Greece is part of the eurozone and the government must act to make sure this remains the case. Germany is now waiting for the new proposals from Greece:

Updated

Donald Tusk, President of the European Council, has confirmed this morning’s conference call and its participants:

George Osborne to make Commons statement on Greece

UK chancellor George Osborne is set to make a statement about Greece in the Commons at around 3.30 today. Earlier Osborne met prime minister David Cameron and Bank of England governor Mark Carney to discuss the crisis:

Greek banks can keep allowing withdrawals until Friday, depending on what happens with the ECB, the BBC’s Robert Peston has reported:

Meanwhile, earlier:

The Eurogroup – which as we said earlier is to meet on Tuesday – has said it expects new proposals from Greece. In a statement it said:

The Eurogroup will discuss the situation following the referendum in Greece that was held on 5 July 2015. Ministers expect new proposals from the Greek authorities.

The referendum was held after the Greek government unilaterally withdrew from ongoing negotiations with the institutions (the European Commission, the European Central Bank and the International Monetary Fund) on Greece’s comprehensive reform plan, foreseen under the agreement of February 2015.

Greece likely to be on BRICS summit agenda

There has been no official reaction from the Kremlin yet about the Greek vote, writes Shaun Walker, but Russia has been watching the drama unfold between Athens and Brussels with some interest, and Greek prime minister Alexis Tsipras has made two visits to Moscow in recent months to make the point that Greece could seek alternative creditors. He has left with little in the way of concrete commitments, however.

A summit of the BRICS group of nations (Brazil, Russia, India, China, South Africa) will be held in the Russian city of Ufa later this week and Greece is likely to be on the agenda. Various ideas have been floated in recent weeks, including making Greece a member of the club, which would give it access to loans from the newly founded BRICS development bank.

However, while Moscow might be keen on the idea for political reasons, Russia is also still in a difficult financial situation, and the other BRICS members may well be less keen.

The Eurogroup will be meeting tomorrow ahead of the eurozone leaders’ summit, its president Jeroen Dijsselbloem has just said:

As the European Central Bank decides about liquidity for Greek banks – ahead of the July 20 date for the country to repay €3.5bn on a bond held by the ECB – economist Dario Perkins at Lombard Street Research points to one possible outcome:

Updated

UK papers have reflected the uncertainty over the what comes next for the eurozone, as Roy Greenslade reports:

Crisis, chaos, turmoil. Today’s British national newspaper headlines reflect the seriousness of the situation facing the European Union and the eurozone after the referendum vote in Greece.

Several of the newspapers also convey the sense of bafflement at what happens next: “Europe faces crisis after gambling Greeks say No” (The Times); “Europe in turmoil as Greeks vote No” (Daily Telegraph); “Greek ‘no’ plunges Europe into crisis” (The Independent); “Greeks vote ‘no’ – Europe shudders (i); and “Greece’s eurozone future hangs in balance as No vote set to triumph” (Financial Times).

The Daily Mail and Daily Express engage in some prediction: “Meltdown: EU in crisis as Greece votes ‘no’ to crippling cuts and heads for eurozone exit” and “Greece ready to leave the Euro after day of chaos”.

Two prefer to state the bald fact: “Greek voters defy Europe” (The Guardian) and “Greeks vote no” (Metro). And the red-tops, being the red-tops, indulge in puns: “Greeky bum time” (The Sun); “Rhodes to ruin?” (Daily Mirror); and “It’s Greece frightenin’.” (Daily Star).

But there is nothing to smile about in the editorials, several of which refer to it, predictably, as a “Greek tragedy.” Newspapers opposed to the EU or, at the least, to the euro, barely conceal their delight at the possible unravelling of the eurozone.

Full story here:

Here’s Alexis Tsipras and his colleagues at their meeting this morning to discuss their next move after the no victory in the referendum:

Tsipras arrives for the meeting.
Tsipras arrives for the meeting. Photograph: Louisa Gouliamaki/AFP/Getty Images
Meeting begins.
Meeting begins. Photograph: Petros Giannakouris/AP

Earlier Tsipras met Greek president Prokopis Pavlopoulos:

Tsipras visits Pavlopoulos.
Tsipras visits Pavlopoulos. Photograph: Imago / Barcroft Media/imago/Wassilis Aswestopoulos

ECB member and Bank of France governor Christian Noyer has been commenting on Greek finances:

This refers to Greek debt held by the ECB, which he says cannot be restructured because it would be monetary financing of a state.

According to the bookies, Greece will not leave the eurozone this year but Britain is likely to vote to leave the EU in a referendum:

European Commission president Jean-Claude Juncker will hold a conference call with the Eurogroup and European Central Bank (among others) this morning.

In a statement the commission said it “takes note of and respects the result of the referendum in Greece,” and added:

President Juncker is consulting (…) with the democratically elected leaders of the other 18 Eurozone members as well as with the Heads of the EU institutions. He will have a conference call among the “Euro-Institutionals” (with the President of the Euro Summit, the President of the Euro Group and the President of the European Central Bank) on Monday morning. He intends to address the European Parliament in Strasbourg on Tuesday.

On Tuesday 7 July at 18h a special Euro Summit will take place to discuss the situation after the referendum in Greece.

Updated

Fabio Sdogati, professor of International Economics at Politecnico di Milano, the largest technical university in Italy, is clearly a Varoufakis fan:

More from Simon Goodley on IG’s trading floor:

Despite Greece being the world’s biggest financial story since, er, the last time Greece was the world’s biggest financial story, there is surprisingly little activity in the equity markets, where volumes are low. According to Alastair McCaig, market analyst at IG, this is because investors don’t like uncertainty and nobody knows what is going to happen next.

He said: “Ask politicians what is happening with Greece and they say ‘I don’t know’. Markets are the same. Greece has surprised at every opportunity. Last week they surprised by calling a referendum. This week they surprised by voting ‘no’. They have the propensity to surprise again”.

Added to that, there is also the wobbly Chinese stock market, which is causing further nervousness (and which here they suspect is a bigger markets story) plus the fact that we are currently inhabiting a month between May and September – a section of the year the City tends to like to take off.

European markets down, Greek bond yields higher

European markets remain in the red, but are not in freefall:

European markets
European markets Photograph: Reuters/Reuters

The bond markets are more volatile.

Greek 10 year bond yields are back above 17% at 17.3% while two year yields are up 13 percentage points at a hefty 48% (although Reuters is reporting no trading is going on.)

Meanwhile Spanish 10-year yields are up marginally at 2.3%, Italy’s are at 2.32% and Portugal at 3%.

Updated

So, is Grexit more or less likely now given the developments of the last few hours:

However:

Euclid Tsakalotos, the Oxford-educated chief spokesman of the economics ministry, has been tipped as the most likely replacement for Yanis Varoufakis, writes Jennifer Rankin.

“He is one of the most sensible/moderate figures in Syriza and his appointment, if confirmed, would increase the chances for a sensible negotiation and a positive outcome,” Demetrios Efstathiou of Standard Chartered bank said.

Euclid Tsakalotos (left) with Yanis Varoufakis.
Euclid Tsakalotos (left) with Yanis Varoufakis. Photograph: Alkis Konstantinidis/REUTERS

Back in the bond markets and UK 10-year gilt yields have hit their lowest level since mid-June, with investors seeing the UK as something of a haven.

The no vote raises the risk of Greece leaving the eurozone, but the basis for a dialogue between the two sides still exists, according to French finance minister Michel Sapin.

He also said discussions of possible debt relief were “not taboo” and said France had put this proposal on the table. MNI reports:

“The ‘no’ carries a considerable risk for Greece,” Sapin told Europe 1 radio. “In this risk for Greece is the risk of an exit from the euro. But there is nothing automatic.”

Sapin said that “there is on the table a basis for dialogue but it is up to Greece to show that it will take this dialogue seriously.” He said it was “up to the Greek government and Mr. Tsipras to make new proposals as quickly as possible.”

Sapin declined to comment on the possible reaction of the European Central Bank to the Greek vote, other than to say that “there is a level today of liquidity. This level of liquidity cannot be reduced.”

Michel Sapin.
Michel Sapin. Photograph: CHAMUSSY/SIPA/REX Shutterstock/CHAMUSSY/SIPA/REX Shutterstock

Greek bond yields are currently up 139 basis points at 16.24% but they have been higher this morning:

View from the trading room floor

“The Greek bloke’s resigned. He’s run rings round ‘em.”

That was how one IG trader was overheard explaining the news of the resignation of Greek finance minister Yanis Varoufakis following Sunday’s referendum, as he chatted on the phone in early trading this morning, writes Simon Goodley.

To say the City is surprised by the news coming out of Greece is an understatement. Like eurozone officials it had expected that last week’s trailer of capital controls would be enough to get the country to vote yes, and IG priced a yes vote as a 60% chance last week.

So what now? Chris Beauchamp, senior market analyst at IG, said: “[German stock market] the Dax has opened down but is surging back – much like it did last Monday and much like the euro is doing. It is coming back on Varoufakis’s resignation – possibly more hope than expectation, but if you take out the most irritating man in the room then you might get a more reasonable response from Germany and France”.

Updated

And here’s a (typical) reaction from London mayor Boris Johnson:

Some timings for German comments on the Greece situation, courtesy Reuters:

German chancellor Merkel arrives at the Chancellery in Berlin this morning
German chancellor Merkel arrives at the Chancellery in Berlin this morning Photograph: Fabrizio Bensch/Reuters

Elsewhere German industrial orders fell by just 0.2% in May, better than an expected 0.4% decline, despite the current eurozone crisis.

Economist Dr. Andreas Rees at UniCredit said:

After two consecutive and strong rises, German new orders in the manufacturing sector declined a moderate 0.2% month on month. The latest decrease is neither driven by a fundamental deterioration nor by the events in Greece.

The direct macro impact is limited, as only 0.4% of all German exports are shipped to Greece. The same is true for other eurozone countries. The most likely scenario going forward is that German companies (and their peers in the eurozone) will resume momentum in the next few months.

Italian Prime Minister Matteo Renzi is due to meet his finance minister, Pier Carlo Padoan, at 9.30am (8.30am BST) today to discuss the Greek referendum, writes Rosie Scammell. As the result came in last night, Padoan took to Twitter to share his views on the vote:

(Italy has always worked for a solid and more integrated Europe. It was true yesterday and it will still be true tomorrow.)

(Shared rules by European peoples serve to guarantee the same objectives: affluence through economic growth and employment )

(Reforms and investments are in all countries the key to regain sustainable growth)

The Greek government spokesman has just said Varoufakis’ replacement will be announced after the meeting of party political leaders. That would suggest the leftist-led government is attempting to find consensus over the issue, Helena Smith reports.

The spokesman said.

As finance minister Yanis Varoufakis placed a leading role in negotiations from the government’s first day. The prime minister feels the need to thank him for his ceaseless effort to promote the positions of the government and the interests of the Greek people under very difficult circumstances. After the meeting of political leaders, his replacement will be announced.

Updated

Tsipras to decide on Varoufakis replacement

Over in Athens our correspondent Helena Smith says prime minister Alexis Tsipras is now debating who to replace his finance minister with. She writes:

Talks are being held between deputy prime minister Yannis Dragasakis and Tsipras as I write with the sole purpose of deciding who should replace Yanis Varoufakis.

Dragasakis, a former Marxist who is also an economist, is himself one of the contenders. The low-profile politician has had broad oversight of Greece’s economic policy over the last five months – and had expressed growing displeasure with Varoufakis’ tactics. But the 67-year-old may well wish to remain behind the scenes where he has a particularly powerful role.

That leaves the economics professor Giorgos Stathakis, currently the economics minister and the Oxford-educated economist Euclid Tsakalotos, who has had a lead role coordinating negotiations.

George Chouliarakis, the Manchester University academic heading the Greek government’s negotiating team – whose moderate views and comportment has been particularly well received by creditors – is reportedly also being considered.

Banking shares are among the major fallers, given the prospect of contagion from the struggling Greek banking system.

Deutsche Bank is down 2.7%, Santander 2.6% and Italy’s Monte Dei Paschi is 3.5% lower. In the UK Barclays and HSBC have both fallen around 1.2%.

But generally the reaction so far has been fairly subdued – at least compared to the expected falls.

Of course, the surprise resignation of Yanis Varoufakis has probably helped limit the damage, since it could well make negotiations easier when leaders meet on Tuesday.

European markets open lower

After shares fell sharply in Asia after the no vote in the Greek referendum, European markets are following suit.

The FTSE 100 is currently down just over 1% or 70 points but this is less than the 130 originally expected. Early days yet, of course.

Germany’s Dax is down around 2%, Spain’s Ibex is off 2.2%, Italy’s FTSE MIB is 2.8% lower and France’s Cac has fallen 2%.

Other events to watch out for today:

  • The UK government and the Bank of England are to review continency plans
  • Germany’s Angela Merkel and France’s Francois Hollande are to meet tonight ahead of a leaders’ summit on Tuesday
  • Greek prime minister Alexis Tsipras is putting together his new negotiating team

More reaction, this time from Italy. Rosie Scammell writes:

Italy’s newspapers are today awash with Greek flags, with most leading on the impact the no vote will have on Europe. “Greece, a slap in Brussels’ face” reads the front page of left-leaning daily La Repubblica, while Italy’s leading daily, Corriere della Sera, writes “The Greek NO scares Europe”.

In covering the resignation of the Greek finance minister, Yanis Varoufakis, Italian media have honed in on his fashion choice. Varoufakis appeared at a press conference in a grey t-shirt on Sunday night, before today announcing his decision to quit. Italians themselves are still getting used to the casual clothing choices of their own prime minister, Matteo Renzi, who often makes public appearances in jeans.

Corriere Della Sera
Corriere Della Sera Photograph: Corriera Della Sera
La Repubblica
La Repubblica Photograph: La Republbica

Bond yields rise after referendum result

Yields on government bonds in Spain, Italy and Portugal are moving higher after the no vote, not surprising given the implications of Greece moving closer to a eurozone exit on these countries:

Updated

European Central Bank to meet on Greece

One of the key decisions of the day will be made by the European Central Bank when it looks at whether to continue providing liquidity to Greek banks. If not, they will struggle to reopen on Tuesday, as Greek politicians (notably the now departed Yanis Varoufakis) had promised. Michael Hewson, chief market analyst at CMC Markets UK, said:

The ball now lies firmly in the ECB’s court as the prospect of Greek banks running out of money in the coming hours is likely to increase, with the prospect that the ECB will cut off Greek banks in the process causing a collapse of the Greek banking system, and in the process highlighting the significant structural flaws of the euro.

In a proper monetary union it would be inconceivable for the US to cut off Florida or for the UK government to cut off Scotland from their lender of last resort, but if the ECB ends ELA then that is precisely what will happen to Greece, either later today, or later this week.

Updated

The surprise resignation of Yanis Varoufakis comes ahead of a meeting tomorrow between eurozone leaders to discuss their next steps following the no victory in the referendum.

That could of course make things easier for Greek prime minister Alexis Tsipras in any discussions with his peers. Varoufakis himself said as much: “I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my … ‘absence’ from its meetings.” Over the weekend he had accused Greece’s European creditors of “terrorism.”

And in keeping with his tenure as finance minister he ended with a jibe at his tormentors: “I shall wear the creditors’ loathing with pride.”

His departure was not the first in the wake of the vote – yesterday Antonis Samaras, the head of the opposition rightwing New Democracy party who campaigned for the yes side, stepped down.

But the decision by the motorcycle-riding, game-playing Varoufakis has far more significance, as shown by the fact the euro recovered some of its lost ground in the wake of the announcement:

Euro July 5
Euro July 5 Photograph: Reuters/Reuters

Updated

Here’s an early call on how European markets are expected to open, courtesy IG:

Summary

I’m handing over our continuing coverage of events in Greece and across Europe to my colleague Nick Fletcher. Here’s a short summary of how events stand at the moment:

  • The Greek finance minister Yanis Varoufakis has resigned, despite a no vote in the referendum. In a blog post on his website Varoufakis flagged that his decision was prompted in part by “some European participants” expressing a desire for his role to end in any further negotiations.
  • Alexis Tsipras has called for a key political meeting to take place in Greece on Monday morning at 10:00am to discuss the outcome of the referendum.
  • Greeks voted overwhelmingly for a no vote in the referendum, with over 61% casting a no vote in the groundbreaking political decision.

Here’s our report on the dramatic referendum result:

European leaders were scrambling for a response on Monday after a resounding no from Greek voters in a momentous referendum on austerity which could send the country crashing out of the eurozone.

With Europe’s financial markets set to follow Asia’s overnight lead by going sharply into the red, German chancellor Angela Merkel was to meet with French leader François Hollande in Paris after Greece overwhelmingly rejected international creditors’ tough bailout terms.

The pair spoke by telephone late Sunday, declaring the referendum decision must “be respected” and calling for an emergency eurozone summit which European Union president Donald Tusk said would be held on Tuesday.

A flurry of other meetings will also be held Monday as European leaders sized up the implications of the vote, a victory for Greece’s radical prime minister Alexis Tsipras, who insisted it did not mean a “rupture” with Europe.

Here’s the full story:

Updated

Here’s the very immediate response from some of the financial markets.

A short time before the post announcing his resignation, Varoufakis posted a much more jubilant note about the referendum decision:

On the 25th of January, dignity was restored to the people of Greece.

In the five months that intervened since then, we became the first government that dared raise its voice, speaking on behalf of the people, saying no to the damaging irrationality of our extend-and-pretend ‘Bailout Program’.

We

    • spread the word that the Greek ‘bailouts’ were exercises whose purpose was intentionally to transfer private losses onto the shoulders of the weakest Greeks, before being transferred to other European taxpayers
    • articulated, for the first time in the Eurogroup, an economic argument to which there was no credible response
    • put forward moderate, technically feasible proposals that would remove the need for further ‘bailouts’
    • confined the troika to its Brussels’ lair
    • internationalised Greece’s humanitarian crisis and its roots in intentionally recessionary policies
    • spread hope beyond Greece’s borders that democracy can breathe within a monetary union hitherto dominated by fear.

Ending interminable, self-defeating, austerity and restructuring Greece’s public debt were our two targets. But these two were also our creditors’ targets. From the moment our election seemed likely, last December, the powers-that-be started a bank run and planned, eventually, to shut Greece’s banks down. Their purpose?

Updated

Here’s our latest report on Varoufakis’ resignation. More details to be added shortly:

The Greek finance minister Yanis Varoufakis has resigned in the wake of the country’s resounding no vote rejecting the eurozone’s austerity terms.

Writing on his blog on Monday morning he said that he would be standing down immediately after pressure from Greece’s European partners.

“Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my … ‘absence’ from its meetings,” he wrote.

The prime minister Alexis Tsipras judged this to be “potentially helpful to him in reaching an agreement. For this reason I am leaving the ministry of finance today”.

He added: “The referendum of 5 July will stay in history as a unique moment when a small European nation rose up against debt-bondage.

“Like all struggles for democratic rights, so too this historic rejection of the Eurogroup’s 25 June ultimatum comes with a large price tag attached. It is, therefore, essential that the great capital bestowed upon our government by the splendid NO vote be invested immediately into a YES to a proper resolution – to an agreement that involves debt restructuring, less austerity, redistribution in favour of the needy, and real reforms.

Updated

Varoufakis’ presence in further negotiations was always going to be difficult after his public rhetoric about the role of European leaders.

In one interview published on Saturday, he accused the country’s creditors of terrorism:

“What they’re doing with Greece has a name: terrorism,” Varoufakis told Spain’s El Mundo. “What Brussels and the troika want today is for the yes [vote] to win so they could humiliate the Greeks. Why did they force us to close the banks? To instil fear in people. And spreading fear is called terrorism.”

On Sunday night he promised to resign in the event a yes vote was recorded. Despite the outcome of a no vote, he has still followed through on that decision to resign.

Updated

"Minister no more": Greek finance minister Yanis Varoufakis resigns

In another extraordinary development the Greek finance minister has just announced his resignation.

In a move likely to spark further concerns about the role of other European leaders in Greece’s internal politics, Varoufakis said he was made aware of a preference by “some European participants” of his absence throughout the continuing negotiations.

The post was made on Varoufakis’ blog and there is nothing to suggest it is not authentic. It has also been cross-posted on his Twitter account.

Here’s the post in full:

The referendum of 5th July will stay in history as a unique moment when a small European nation rose up against debt-bondage.

Like all struggles for democratic rights, so too this historic rejection of the Eurogroup’s 25th June ultimatum comes with a large price tag attached. It is, therefore, essential that the great capital bestowed upon our government by the splendid NO vote be invested immediately into a YES to a proper resolution – to an agreement that involves debt restructuring, less austerity, redistribution in favour of the needy, and real reforms.

Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today.

I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum.

And I shall wear the creditors’ loathing with pride.

We of the Left know how to act collectively with no care for the privileges of office. I shall support fully Prime Minister Tsipras, the new Minister of Finance, and our government.

The superhuman effort to honour the brave people of Greece, and the famous OXI (NO) that they granted to democrats the world over, is just beginning.

Peter Kazimir, the Slovakian finance minister, has also made some rather colourful observations of the current situation overnight:

The UK government is also prepared to do whatever necessary to protect the country from the impact of a possible exit from the Eurozone for Greece. This from AFP is the latest update:

Britain will do “whatever is necessary to protect its economic security”, a government spokesman said Monday after Greeks voted overwhelmingly against austerity in a referendum that could send them crashing out of the eurozone with unknown consequences.

“This is a critical moment in the economic crisis in Greece,” a Downing Street spokesman said. “We will continue to do whatever is necessary to protect our economic security at this uncertain time. We have already got contingency plans in place and later this morning the Prime Minister will chair a further meeting to review those plans in light of yesterday’s result.”

The front pages of newspapers across Europe are a combination of fear, hope and (on occasion) somewhat comical absurdity.

Here’s a short sample of a few of them, starting off with a rather extraordinary one from Efsyn featuring Dutch politician Jeroen Dijsselbloem:

Here’s the Guardian’s view on the current impasse now facing Europe following the Greek referendum:

Kicking the can down the road has been the cliche of choice over a slow euro crisis that has steadily strangled the life out of the Greek economy. But at some point Europe was bound to run out of road. That happened on Sunday night, when it emerged that the Greek people had said no to continuing to engage with their creditors on the same suffocating terms.

Just over a week ago, Alexis Tsipras staked his future on forcing this denouement. The eight days that followed his midnight declaration of a plebiscite, to accept or reject the creditors’ terms for the latest slug of overdraft, have witnessed many extraordinary things. The Greek parliament licensed a hasty referendum on a question that had already been overtaken by events. A ballot paper written in jargon posed a ludicrously technical question, opening up a void for emotion to fill. Mixing talk of “terror” from their partners with haze about what would happen after a no, Mr Tsipras and his finance minister, Yanis Varoufakis, aimed squarely for the heart rather than the head. Meanwhile, Greeks faced the fiercest financial controls ever seen in modern Europe: bank doors were shut, supplies disrupted, and citizens queued at every cashpoint for their ration of notes. In countries such as Germany, where history engenders suspicion of referendums, it may have looked like a paradigm case of how not to do democracy.

As the sun begins to rise now in Greece on “the morning after” Syntagma Square appears empty. That may well change as another highly politically charged day is set to get underway across Europe

John Cassidy in the New Yorker has outlined some useful analysis on the implications of the no vote:

Whether they will be offered one within the eurozone remains to be seen. Although the result was a great political triumph for Tsipras and Syriza, it doesn’t automatically translate into a victory in the showdown with the European Union and the International Monetary Fund. Greece is still broke, and its banks are still closed. If the Europeans want to force the Greeks out of their currency club, they have the means to do it at any moment. All they have to do is turn off the credit that the European Central Bank has been providing to Greece’s banks. Indeed, the ECB’s governing council will decide on Monday what to do next.

With Angela Merkel, the German chancellor, and François Hollande, the French president, due to meet in Paris on Monday afternoon, and an emergency summit of all European Union leaders scheduled for Tuesday, it seems highly unlikely that the ECB. will render these deliberations pointless by immediately torpedoing the Greek financial system. In all likelihood, there will be at least one more round of talks between the two sides, and, quite possibly, more than one. Greece’s next big payment to its creditors isn’t due until 23 July, which is more than two weeks away. If the country’s banks can somehow be propped up until then, there is time for more deliberation.

Updated

We’ve written a lot about the market reaction to events in Europe, but the political fallout in Greece is still likely to unfold rapidly over the next few days.

Prime minister Alexis Tsipras is convening a meeting of key political leaders at 10am on Monday in Athens, according to Enikos. Overnight the Greek opposition leader Antonis Samaras resigned following the referendum decision.

How Tsipras proceeds throughout this week will continue to shape how events unfold across Europe.

China’s response to the Greek referendum and the market uncertainty has been to engage in a series of complex manoeuvres aimed at stimulating the market.

It’s not yet clear how successful the measures – which involve a variety of investments and buyouts aided by the central bank – will be in preventing setbacks for their markets.

Reuters have a good take on the different measures that have been employed here:

Chinese stocks jumped on Monday after Beijing unleashed an unprecedented series of support measures over the weekend to stave off the prospect of a full-blown crash that was threatening to destabilize the world’s second-biggest economy.

In an extraordinary weekend of policy moves, brokerages and fund managers vowed to buy massive amounts of stocks, helped by China’s state-backed margin finance company, which in turn would be aided by a direct line of liquidity from the central bank.

Investors, who had ignored official measures to prop up the market as equity indexes slid around 12% last week, finally reacted, with the CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen jumping 4%, while the Shanghai Composite Index .SSEC gained 3 percent. [.SS]

Blue chips, the explicit target of the stabilization fund, outperformed stocks on the small-cap ChiNext indexes.

The rapid decline of China’s previously booming stock market, which by the end of last week had fallen around 30 percent from a mid-June peak, had become a major headache for President Xi Jinping and China’s top leaders, who were already struggling to avert a sharper economic slowdown.

In response, China has orchestrated a halt to new share issues, with dozens of firms scrapping their IPO plans in separate but similarly worded statements over the weekend, in a tactic authorities have used before to support markets.

Updated

My colleague Justin McCurry has filed a more comprehensive take on the Asian market reaction to the Greek referendum, which largely recorded falls across the board but with limited losses.

China is the exception – it saw a boost on open this morning – but that is attributed to the enormous and unprecedented government measures implemented over the weekend to try and stop a market crash.

This from Justin:

Analysts said that regional market panic was unlikely, even after Athens appeared to take a step closer to a “Grexit” by roundly rejecting the bailout terms set by its international creditors But they added that negotiations this week would be critical.

“The Greece ‘no’ vote is a surprise,” Shoji Hirakawa, chief equity strategist at Okasan Securities, told Bloomberg News. “But the key is that the direction is going toward more talks after this.”

Other analysts said markets had not expected Greek voters to reject the terms of the bailout so emphatically – a move that could see further losses on Monday and trigger an investor rush to US Treasuries or other government bonds that are seen as largely immune to market turbulence.

In one of the day’s more colourful commentaries, analysts at Japan’s Mizuho Bank said the Sunday’s “Greferendum” had turned out to be a “Grief-erendum”.

On what most had expected to be a tricky day for markets around the world, dealers stressed that uncertainty over Greece’s future had not rocked markets as badly as some might have expected.

Read his report in full here.

Updated

“The fightback for a Europe of dignity starts here.”

Another short documentary from John Domokos and Phoebe Greenwood.

As Syriza supporters flock to Athens’ Syntagma square to celebrate, Phoebe Greenwood talks to those who are celebrating a historic referendum outcome. ‘They thought they could intimidate us,’ one man says. Despite jitters on the financial markets, others happy with the historic oxi (no) vote say they hope it will be the moment that Greeks can come together.

Crisis will be "appropriately resolved" China minister says

Deputy Chinese foreign minister Cheng Guoping believes the Greek crisis will be “appropriately resolved” and the economy will turn around, Reuters reports.

However he would not say if Alexis Tsipras could attend an emerging powers summit later in the week in Russia.

“I believe that with the hard efforts of all sides, Greece’s economic situation will turn around. The economic crisis will be appropriately handled,” he told reporters, in China’s first official comment since the Greek vote.

“Whether or not it can be appropriately handled will not only have an important impact on Greece and its people, but will have an important impact on … the world too.”

Asked whether Greek Prime Minister Alexis Tsipras might come to this week’s summit of the BRICS group of five major emerging nations – Brazil, Russia, India, China and South Africa – Cheng said that as Russia was the host it was its decision on whether to invite other countries.

Russia’s finance minister said last week that Russia had not offered Greece the chance to become a member of the New Development Bank that is being created by the BRICS group.

Updated

Result is very regrettable – Eurogroup president

Jeroen Dijsselbloem, Dutch finance minister and president of the Eurogroup, has released a statement on the referendum results.

It is a short statement, but needless to say, Dijsselbloem is disappointed.

I take note of the outcome of the Greek referendum. This result is very regrettable for the future of Greece. For recovery of the Greek economy, difficult measures and reforms are inevitable. We will now wait for the initiatives of the Greek authorities. The Eurogroup will discuss the state of play on Tuesday 7 July.

Argentinian president Cristina Fernández de Kirchner, who is never shy of enthusiastically tweeting her opinions, has welcomed the referendum results.

In a series of tweets written in English, Fernández labeled the No vote an “outright victory of democracy and dignity.”

The Greek people have said NO to the impossible and humiliating conditions imposed upon them for the restructuring of their foreign debt. We Argentines understand what this is about. We hope Europe and its leaders understand the message of the polls. Nobody can be asked to sign their own death certificate. The words of President Kirchner still resound at the UN General Assembly in 2003 he said: “The dead do not pay their debts.”

Some background on the link between Argentina and Greece in this current crisis, from Reuters:

There are stark similarities between Argentina’s 2002 financial meltdown and the turmoil in Greece: rigid monetary regimes, creditors battling domestic politics to fix the problem and banking systems at breaking point.

The South American grains behemoth defaulted on $100 billion in bonds in a 2002 crisis that thrust millions of middle-class Argentines into poverty. By the next year, helped by a massive soy crop, Argentina started growing again.

But the 2002 crisis continues to plague its finances.

Fernandez regularly blasts bondholders who have sued the country over the debt it failed to pay 13 years ago.

Most holders agreed to restructurings that paid about 30 cents on the dollar, while a group of hedge funds sued for full repayment.

The country defaulted again last year when a U.S. judge barred it from honouring its restructured debt without reaching a deal with the funds, which Fernandez denounces as “vultures.”

Argentina became one of the world’s fastest expanding economies after its default, growing at an averaging above 8.5 percent between 2003 and 2007, when Fernandez was first elected.

Since then she has ordered trade and currency controls that have slowed investment while government fiscal accounts deteriorate due to high state spending.

Updated

Greek finance minister, Yanis Varoufakis, has claimed the successful No campaign is a “majestic, big YES to a democratic, rational Europe.”

Varoufakis accuses Greece’s creditors of attempting to “humiliate” the leftwing government by forcing stringent austerity, and dragging them into an agreement which “offers no firm commitment to a sensible, well-defined debt restructure.”

He further writes:

Today’s referendum delivered a resounding call for a mutually beneficial agreement between Greece and our European partners. We shall respond to the Greek voters’ call with a positive approach to:

  • The IMF, which only recently released a helpful report confirming that Greek public debt was unsustainable
  • The ECB, the Governing Council of which, over the past week, refused to countenance some of the more aggressive voices within
  • The European Commission, whose leadership kept throwing bridges over the chasm separating Greece from some of our partners.

Updated

‘We’re going to hit the iceberg’

A great short film here from John Domokos.

From the Syriza faithful to the run-down docks of Piraeus and the middle-class district of Faliro, Greeks spent the day of the referendum locked in debate, suspense and catharsis.

For some it was a day they sent a message to Europe that they will ‘not be intimidated’. But many Greeks fear trouble lies ahead. As one voter said, both a yes and no outcome would result in calamity: ‘We’re three metres from the iceberg and we’re here to be asked if we’re going to go right or left.’ Either way, he said, ‘we’re going to hit the iceberg’.

Updated

Shanghai stocks have jumped almost 8%. The government boosts AFP refers to are emergency measures taken to prevent a possible stock market crash in the world’s second-largest economy. It’s not directly related to Greece, but could still have an effect on world markets.

From Reuters: In an extraordinary weekend of policy moves, brokerages and fund managers vowed to buy massive amounts of stocks, helped by China’s state-backed margin finance company which in turn would be aided by a direct line of liquidity from the central bank.

China has also orchestrated a halt to new share issues, with dozens of firms scrapping their IPO plans in separate but similarly worded statements over the weekend, in a tactic authorities have used before to support markets.

Europe dodged a bullet with the No result, and its supporters should be breathing a sigh of relief, Paul Krugman writes for the New York Times.

Krugman’s colourful take on the events of the last day is well worth a read, but here is a snippet. He continues:

Of course, that’s not the way the creditors would have you see it. Their story, echoed by many in the business press, is that the failure of their attempt to bully Greece into acquiescence was a triumph of irrationality and irresponsibility over sound technocratic advice.

But the campaign of bullying — the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.

What’s more, they weren’t. The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding.

Ouch.

Updated

As we continue our watch of the Asian/Pacific markets, the Malaysian ringgit has been given the unenviable title of “worst currency” this morning, according to the FT.

Japan’s Nikkei stock index has mounted a slight recovery after dropping 1.5% in early trading Monday, as Asian markets were jolted by the uncertainty created by Greece’s “no” vote in Sunday’s austerity referendum.

The Nikkei 225 was trading down 1.4% at 20256.69, having earlier fallen 339.64 points to 20,200.15, a day after Greece voted to rejected the eurozone’s terms for the country remaining in the single currency.

South Korea’s Kospi was down 0.9% at 2,085.67.

Nils Pratley, the Guardian’s financial editor, says the current crisis has pushed the financial world back to the wild markets of the 2008 financial crisis.

You can read Nils’ analysis in full here, but below is a snippet on bond markets, which he says will take centre stage.

That is where Grexit worries will be keenest. If Greece could be on the way out of the single currency, will investors be less willing to hold the debt of other eurozone states carrying heavy debt loads? The sovereign debt of Spain, Italy, Portugal and Ireland will be closely watched for knock-on effects. Will there be contagion?

All eyes will turn to the European Central Bank. First, to see if it cuts off support for Greek banks. Second, to learn if it is prepared to intervene to protect the bonds of other eurozone stragglers. Last Sunday, when Greek prime minister Alexis Tsipras called the referendum, the ECB and the eurogroup ministers pledged to react, if needed, to avoid a dangerous fall-out in debt markets.

Pratley also makes an interesting point that while the euro will “almost certainly fall in value initially” there is another school of though which says “the single currency would be strengthened in the long run by the departure of its weakest member.”

The Australian stock exchange fell sharply on Monday’s open, not long after the final vote was counted (not that 100% was needed to see the overwhelming response). Below is a graph from the ASX website.

The Australian stock market fell sharply on open on Monday 6 July, following Greece's rejection of bailout terms by creditors.
The Australian stock market fell sharply on open on Monday 6 July, following Greece’s rejection of bailout terms by creditors. Photograph: ASX

The Australian dollar dipped to a six-year low of US$0.7484 in early trading but has recovered to 0.7509.

The euro, not surprisingly, was down 0.8% at $1.1015 but off an early low of $1.0967. It had initially dropped around 1.5% against the yen – which is seen as a safe haven.

The US dollar also recouped its early drop to be only a touch softer at 122.48 yen.

Updated

In a delightfully headlined post, the Financial Times says early moves don’t suggest a panic in the Asian markets. It also notes:

“The hope for Alexis Tsipras, prime minister, is that the vote galvanises support for his anti-austerity agenda and forces Athens’ creditors to make concessions.

But it’s questionable whether banks will re-open on Tuesday (after a holiday today), as planned. If they don’t, the “no” vote could fast-track a Grexit and see Greece revive its only currency.”

Read more from ‘Fast Asia Open: Oxi oxi oxi, oi oi oi’ here.

Summary

While we await further market news, let’s have a look back at the extraordinary last few hours. My colleague Graeme Wearden, and before him Julia Kollewe, drove live coverage of the vote count and reaction in the streets of Greece and around the world.

You can relive the night blow by blow here, or Graeme’s summary is below.

Greece has delivered a resounding No to its creditors, in a move that has stunned the eurozone tonight and may shake the financial markets.

In the last few minutes, the last ballot papers were counted. And No campaign has exceeded all expectations by securing 61.31% of the vote [here’s the official count].

As our interactive shows, every area of Greece has voted to reject the proposals of Greece’s creditors and seek a better deal.

Prime minister Alexis Tsipras has declared that it’s a historic day for Greece, which shows that democracy cannot be blackmailed.

In a TV address, Tsipras has also vowed to begin negotiations with creditors to reach a sustainable deal to tackle Greece’s debt crisis.

“You made a very brave choice.

“The mandate you gave me is not the mandate of a rupture with Europe, but a mandate to strengthen our negotiating position to seek a viable solution.”

“No” supporte”No” supporters wave Greek national flags during celebrations in Athens, Greece<br />“No” supporters wave Greek national flags during celebrations in Athens, Greece July 5, 2015. Greeks overwhelmingly rejected conditions of a rescue package from creditors on Sunday, throwing the future of the country’s euro zone membership into further doubt and deepening a standoff with lenders. REUTERS/Dimitris Michalakis” width=”1000″ height=”600″ class=”gu-image” /><br />
<figcaption> <span class=“No” supporte”No” supporters wave Greek national flags during celebrations in Athens, Greece
“No” supporters wave Greek national flags during celebrations in Athens, Greece July 5, 2015. Greeks overwhelmingly rejected conditions of a rescue package from creditors on Sunday, throwing the future of the country’s euro zone membership into further doubt and deepening a standoff with lenders. REUTERS/Dimitris Michalakis Photograph: STRINGER/Reuters

Greece’s future in the eurozone looks more perilous than ever, and the next 48 hours could be critical.

German chancellor Angela Merkel and French president Francois Hollande will meet in Paris on Monday night.

Then on Tuesday, eurozone leaders will debate the crisis at an emergency summit. Eurozone finance ministers will hold a Eurogroup meeting that afternoon.

Eurogroup president Jeroen Dijssebloem has already criticised the result of the referendum, warning:

“I take note of the outcome of the Greek referendum. This result is very regrettable for the future of Greece.”

But democratic senator Bernie Sanders has hailed the result as a decisive vote against austerity.

A series of financial analysts have warned tonight that Greece is likely to exit the eurozone. As Barclays warned:

“While Chancellor Merkel and President Hollande are scheduled to meet tomorrow, we argue that EMU exit now is the most likely scenario….”

Finance minister Yanis Varoufakis, though, has denied this is an option:

Updated

Japan, S Korea, Australia markets open down

  • Japan Nikkei index down 1.46% to 20239.0
  • Australia’s ASX 200 is down 1.57% to 5451.4
  • South Korea’s Kospi index is down 1.23% at 2078.47

Futures trading

  • UK FTSE 6431.4 (-1.84%)
  • US S&P 500 2044.15 (-1.11%)
  • German DAX 10808.5 (-2.78%)

The Guardian’s Tokyo correspondent, Justin McCurry, has just filed the below update on Japan’s market today.

Japan’s Nikkei stock index opened down more than 300 points on Monday, a day after Greece voted to rejected the eurozone’s terms for the country remaining in the single currency.

The Nikkei mounted a recovery last week after after posting its second-biggest daily drop this year after Greece and its international creditors failed to make a breakthrough in bailout talks.

Japan’s finance minister, Taro Aso, said last week he did not expect dramatic falls in Japanese share prices or a sudden surge in the yen if Greece defaulted but stayed in the eurozone.

He warned, however, that the impact on Japanese and other markets could be big if Athens left the single currency.

Mohamed El-Erian, the former boss of the world’s biggest bond trader Pimco and now chief economic adviser at insurance giant Allianz, said investors should brace for a major global equity selloff.

“Yes, you will see one. With the extent and duration a function of whether the ECB steps in with new anti-contagion measures,” he writes for Bloomberg.

“Without huge emergency assistance from the European Central Bank – a decision that faces long odds – the government will find it hard to get money to the country’s automated teller machines, let alone re-open the banks.”

Over to you Mario Draghi.

Updated

All votes counted – Greece votes no

All referendum votes have now been counted, with a final result of 61.31% voting no, to 38.69% yes.

Eyes are now moving towards the world markets, particularly those in Asia set to open in the next few hours. Tokyo and Korea will be first in the next few minutes and along with Shanghai and Hong Kong later today, are ones to watch.

Unsurprisingly the euro fell sharply in Asia, Reuters has already reported.

The Japanese government said it was ready to respond as needed in markets and was in close touch with other nations.

The euro was down 0.9 percent at $1.1012 but off an early low of $1.0967. It had initially dropped around 1.5 percent on the safe-haven yen only to find a big buy order waiting, which pared its losses to 134.53.

Likewise, the dollar recouped its early drop to be only a touch softer at 122.34 yen. The dollar index added 0.3 percent to 96.434.

Prime minister Alexis Tsipras has addressed the Greek nation, telling voters they made a “brave choice” and that “democracy can not be blackmailed.”

However he added: “I am fully aware that the mandate here is not one to break with Europe by a mandate to strengthen our negotiating position to seek a viable solution.”

Greek voters have overwhelmingly rejected the extra austerity measures demanded by creditors in return for bailout funds. In a referendum held with just eight days notice, more than 60% have voted no, or oxi.

No supporters have taken to the streets in celebration, while Antonis Samaras, the head of the New Democracy party who campaigned for a Yes vote, has resigned.

Shocked EU finance ministers have called an emergency meeting for Tuesday, as analysts fear collapse of the Greek banking system.

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European Central Bank chief Mario Draghi under pressure to peg back the strength of the euro to boost struggling economies. Draghi, who has come under intense pressure, said the strength of the euro had become another reason to consider extra stimulus…

 


Powered by Guardian.co.ukThis article titled “ECB may inject more money into weaker eurozone nations” was written by Phillip Inman in Washington, for theguardian.com on Saturday 12th April 2014 22.58 UTC

The European Central Bank must consider pumping funds into the eurozone economies should the euro/dollar exchange increase again, the organisaton’s chief Mario Draghi said on Saturday.

Draghi, who has come under intense pressure to combat high unemployment and a weak banking sector by injecting extra money into the financial system, said the strength of the euro had become another reason to consider an extra stimulus.

He said the board of the central bank would consider a range of measures to offset the effects of the rising currency on inflation if it increased further.

The euro has appreciated by around 10% against the dollar since last summer, which has made imports cheaper and depressed inflation. Last month official figures showed inflation fell from 0.7% to 0.5%, well below the target of 2%.

Speaking at the International Monetary Fund’s spring conference, Draghi said inflation was depressed following a fall in commodity prices, and especially fuel compared to last year. The inflationary effects of VAT rises had also come to an end. Low demand, especially in countries hit hard by the financial crisis was another reason alongside the appreciating value of the euro.

Spain, Italy, and Greece are among the many countries that have called for a stimulus to head off deflation, which would lead to falling wages and a potential downward spiral of declining inflation and recession.

The ECB board has so far rejected calls to combat low inflation with measures such as quantitative easing (QE), which involves pumping money into the bank system to increase the supply of credit. The adoption of QE is widely credited with helping reflate the US and UK economies, which have grown strongly over the last year and and are already considering withdrawing stimulus measures.

Draghi is believed to want to move more quickly and his emphasis on the negative effects of a higher currency was widely seen as a way to increase pressure on his fellow board members to adopt QE.

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It’s not clear what the European Central Bank can do about the problem. Mario Draghi and his colleagues are faced with a stubborn inflation which remains stuck at 0.8%, well below the central bank’s 2% target for the currency zone…

 


Powered by Guardian.co.ukThis article titled “Inflation is too low in Europe” was written by Phillip Inman, for The Guardian on Wednesday 5th March 2014 22.48 UTC

Mario Draghi is faced with a dilemma. All the signals from the eurozone show a gentle recovery is gaining momentum. Tills are ringing from Madrid to Berlin, while manufacturing in Portugal is beginning to show signs of life. Yet inflation is stuck at 0.8%, well below the 2% target for the currency zone.

The European Central Bank chief is under pressure to follow the Fed and the Bank of England by turning on the cheap money taps. Only a dose of quantitative easing (QE) will boost demand.

Draghi hinted strongly last month that low growth and low inflation reflected a form of economic stagnation he wanted to avoid. Action was necessary, maybe this month. He said: “Right now we have a level of inflation which is way below 2% … We know that the longer it stays at the current level, the higher will be the risk that it will not go back to 2% in any reasonable time and we don’t want that.”

Most likely he will ease the situation a little. Will there be a rate cut ? Probably not. And QE is out of the question. Maybe a little behind-the-scenes fiddling with ECB bond purchases to cut lenders’ costs.

It’s a nice problem to have, though. A better economic scenario would also avert a row brewing with the Germans over his OMT lifeboat scheme for bankrupt eurozone members. Portugal will exit its rescue scheme in May, and Greece seems solidly ring-fenced. Still, it’s not clear how Draghi can, by himself, create enough demand to push up inflation.

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Upbeat mood in Britain contrasts with pessimistic eurozone surveys. Fears of recession in France grow. Eurozone composite PMI remains in expansion territory above the 50 mark at 51.5, but declines from October’s level of 51.9…

 


Powered by Guardian.co.ukThis article titled “UK manufacturing expands at fastest rate since 1995″ was written by Heather Stewart, for theguardian.com on Thursday 21st November 2013 13.32 UTC

Britain’s manufacturing sector is expanding at its fastest pace for 18 years as new orders pour in, according to a new survey, rekindling hopes for a rebalancing of the economy.

The Confederation of British Industry’s monthly industrial trends survey shows manufacturing orders and output both at their highest level since 1995.

The CBI said that 36% of firms reported their order books were above normal, with 25% saying they were below normal. The resulting balance of +11% was the strongest since March 1995. Similarly, the positive balance for firms’ level of output, at +29%, was the strongest since January 1995.

Stephen Gifford, the CBI’s director of economics, said: “This new evidence shows encouraging signs of a broadening and deepening recovery in the manufacturing sector. Manufacturers finally seem to be feeling the benefit of growing confidence and spending within the UK and globally.”

The coalition will be encouraged to see signs of a revival in British industry, after fears that the economic recovery has so far been too reliant on consumer spending and an upturn in the housing market.

The chancellor of the exchequer, George Osborne, has said he would like to see a “march of the makers”, helping to double exports by the end of the decade, so that Britain can “pay its way in the world”.

Business surveys have been pointing to a revival in manufacturing for some time, but it has only recently begun to be reflected in official figures, which showed a 0.9% increase in output from the sector in the third quarter of 2013, driven primarily by the success of carmakers. However, output from manufacturing remains more than 8% below its peak before the financial crisis.

News of the upbeat mood among manufacturers in the UK contrasts with more pessimistic surveys from the eurozone where the so-called “flash PMIs” suggest that the economic recovery is petering out in several countries, including France.

While the composite PMI for the eurozone remains above the 50 mark at 51.5, this is a decline from October’s level of 51.9, suggesting that while the eurozone economy as a whole has not slipped back into recession, the pace of growth appears to have slowed.

Chris Williamson, of data provider Markit, which compiles the survey, said: “The fall in the PMI for a second successive month suggests that the European Central Bank was correct to cut interest rates to a record low at its last meeting, and the further loss of growth momentum will raise calls for policy makers to do more to prevent the eurozone from slipping back into another recession.”

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Greece ‘backsliding in democracy’ in face of joblessness, social unrest, corruption and disillusion with politicians, says thinktank. The report, commissioned by the European parliament, noted that Greece was the most corrupt state in the 28-nation bloc…

 


Powered by Guardian.co.ukThis article titled “Greece’s democracy in danger, warns Demos, as Greek reservists call for coup” was written by Helena Smith in Athens, for The Guardian on Thursday 26th September 2013 19.27 UTC

No country has displayed more of a “backslide in democracy” than Greece, the British thinktank Demos has said in a study highlighting the crisis-plagued country’s slide into economic, social and political disarray.

Released on the same day that judicial authorities ordered an investigation into a blog posting by an elite reservist group linked to Greece’s armed forces calling for a coup d’etat, the study singled out Greece and Hungary for being “the most significant democratic backsliders” in the EU.

“Researchers found Greece overwhelmed by high unemployment, social unrest, endemic corruption and a severe disillusionment with the political establishment,” it said. The report, commissioned by the European parliament, noted that Greece was the most corrupt state in the 28-nation bloc and voiced fears over the rise of far-right extremism in the country.

The report was released as the fragile two-party coalition of the prime minister, Antonis Samaras, admitted it was worried by a call for a military coup posted overnight on Wednesday on the website of the Special Forces Reserve Union. “It must worry us,” said a government spokesman, Simos Kedikoglou. “The overwhelming majority in the armed forces are devoted to our democracy,” he said. “The few who are not will face the consequences.”

With tension running high after a crackdown on the neo-Nazi Golden Dawn party, a supreme court public prosecutor demanded an immediate inquiry into who may have written the post, which called for an interim government under “the guarantee of the armed forces”.

The special forces reservist unit who issued the social media call – whose members appeared in uniform to protest against a visit to Athens by the German chancellor, Angela Merkel – said Greece should renege on the conditions attached to an international bailout and set up special courts to prosecute those responsible for its worst financial crisis in modern times. Assets belonging to German companies, individuals or the state should be seized to pay off war reparations amassed during the Nazi occupation.

Underscoring the social upheaval that has followed economic meltdown, the blog post argued that the government had violated the constitution by failing to provide adequate health, education, justice and security.

Insiders said the mysterious post once again highlighted the infiltration of the armed forces by the extreme right. This week revelations emerged of Golden Dawn hit squads being trained by special forces commandos.

Fears are growing that instead of reining in the extremist organisation, the crackdown on the group may ultimately create a backlash. The party, whose leaders publicly admire Adolf Hitler and have adopted an emblem resembling the swastika, have held their ground in opinion polls despite a wave of public outrage over the murder of a Greek rap musician, Pavlos Fyssas, by one of its members. Golden Dawn, which won nearly 7% of the vote in elections last year and has 18 MPs in Athens’ 300-member parliament, has capitalised more than any other political force on Greece’s economic crisis. “Much will depend on how well it will withstand the pressure and they are tough guys who seem to be withstanding it well,” said Giorgos Kyrtos, a political commentator.

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UK double-dip never happened… but UK economy still weaker than thought. European Union deal sees creditors pay for failed bank rescues. What the ministers said.  Ireland is back in recession after its GDP data was revised sharply lower…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis: Bank rescue rules agreed, as EU Summit begins” was written by Graeme Wearden, for theguardian.com on Thursday 27th June 2013 17.49 UTC

6.49pm BST

Key event

EU leaders have now got down to work in Brussels, and probably won't hold a press conference until late tonight.

So I'm going to stop the liveblog — and catch up on developments in the morning. We'll have more news on the EU summit on the website this evening, and I'll be back in the morning.

Thanks and goodnight. GW

6.28pm BST

More details leaking out…

6.22pm BST

Van Rompuy: let’s make progress on youth unemployment

EC president Herman Van Rompuy opened the EU summit tonight by urging leaders to take "concrete action" on two key issues – youth unemployment, and the credit crunch that is holding small firms back.

You can watch a recording here.

It suggests that the draft statement that emerged earlier today, outlining new 'investment plan' to fight joblessness and drive growth, is on the money (see 4.36pm).

6.17pm BST

Photos: EU leaders get down to business

A couple of photos from inside the EU headquarters in Brussels, as tonight's Summit got underway:

European Commission President  Jose Manuel Barroso arrives for a roundtable meeting at the EU headquarters on June 7, 2013 in Brussels, during European Union leaders summit.
European Commission President Jose Manuel Barroso. Photograph: BERTRAND LANGLOIS/AFP/Getty Images
epa03763157 British Prime Minister David Cameron and Luxembourg's Prime Minister Jean-Claude Juncker (R) during a European Council summit in Brussels, Belgium, 27 June 2013
British PM David Cameron (left) and Luxembourg’s Prime Minister Jean-Claude Juncker. Photograph: OLIVIER HOSLET/EPA

6.05pm BST

Fed’s Lockhart urges calm over tapering

City analysts had predicted earlier this week that the Federal Reserve might respond to last week's tumbling markets with some reassuring statements….and lo, the Atlanta Fed's president is doing just that.

Dennis Lockhart, in a speech in Marietta, argued that the financial markets had mis-interpreted Ben Bernanke last week. No reason to panic about the US 'tapering' its quantitative easing, he soothed. If growth falters, we'll keep stimulating.

Here's Lockhart's key quotes:

The pace of purchases, the composition of purchases and the ultimate size of the Fed's balance sheet still depend on how economic conditions evolve.

If inflation expectations of the public and those indicated by financial markets soften appreciably, we policymakers would have to re-evaluate the appropriateness of policy for the situation.

And this seems to be driving another rally in government bonds, with US Treasuries, UK gilts, German bunds, and peripheral debt from the eurozone all strengthening.

Here's the 10-year bond yields tonight: (falling yields means higher prices):

• US: 2.47%, down 6 basis points (ie, from 2.53% last night)

• UK: 2.42%, down 2bp

• Germany: 1.729%, down 3bp

• Spain: 4.75%, down 5bp

• Italy: 4.58%, down 13bp

• Greece: 10.69%, down 45bp

5.52pm BST

Markets close

Shares up, volatility down. That's the simple story from Europe's stock markets today — particularly after William Dudley of the New York Fed suggested America's bond-buying stimulus package will continue for longer than Ben Bernanke indicated last week (see 3.37pm).

Here's the closing prices:

Stock markets, closing prices, June 27
Photograph: Thomson Reuters

With the FTSE 100 finishing 77 points higher, IG's David Madden said pessimists in the City were starting to get edgy,. They'll probably take the initiative again soon, though, he added:

After three strong ‘up’ days for the FTSE 100, the bears can be forgiven for feeling downcast. With the index straying into triple-digit territory, everyone has been reminded that the volatility of June is not likely to go away as we move into the next month. It looks as if we might have one last hurrah ahead of month-end before reality sets in once again.

4.36pm BST

Over in Brussels, a draft copy of the agreement that will be announced at the end of today/tomorrow's EU summit is circulating. It suggests leaders will announce a new 'investment plan', in an effort to tackle the youth jobless crisis (or at least look like they're tackling the youth jobless crisis)

4.10pm BST

Open Europe: positives and negatives from bank bailout deal

Open Europe has published its views of the EU bank rescue deal agreed early this morning:

Bank bail-in plans finally agreed, but its only a small step towards banking union

It welcomes the fact that bank creditors, not taxpayers, will be on the hook for future losses, but is concerned about the 'flexibility' given to national governments over whether to contribute to a rescue (under the plan, a state could cover up to 5% of a bank's liabilities, after creditors have contributed 8%)

Here's a flavour of Open Europe's analysis:

Positives

  • Reaching a deal is positive in itself, as it adds some much needed certainty following the Cypriot crisis. It also keeps the progress towards banking union inching along.
  • The burden has been shifted away from taxpayers towards bank creditors.
  • The added flexibility is important between eurozone and non-eurozone countries, with the UK and Sweden scoring some important caveats. The deal highlights that non-eurozone countries can still have influence on such rules and the acceptance of the need for flexibility between the two groups.

Negatives

  • From a eurozone point of view, the flexibility could be counterproductive, particularly the use of exemptions in exceptional circumstances. How exactly will this be defined and determined? If at national level, then there could be clear political pressure in a crisis to invoke this. For example, it is hard to imagine that the crises in Greece, Portugal, Ireland and Spain would not have triggered this in some way.
  • Could see cost of bank funding rise, particularly in terms of unsecured credit due to fairly strong depositor preference.
  • Lots of unanswered questions – not least, when and how will these rules apply? It’s not clear in exactly what situation and at what time the new rules would kick in. Does it rely on a request for aid from the bank or the national government?
  • Furthermore, there are questions over how this will work practically in different circumstances – for example, the difference between a bank which has almost completely failed and one which is simply struggling to recapitalise.
  • The timeline also still seems very long, with the actual bail-in rules not in force until 2018, even though the directive is due to be in place by 2015. That said, the broad template may well still apply, particularly where banking union is involved.

More here.

3.57pm BST

Shares rally on Fed comments

After a quiet day in Europe, stock markets are now romping ahead with the FTSE 100 up by 105 points, and the Dow Jones 150 points to the good.

The trigger is comments from a member of the Federal Reserve's Open Market committee, suggesting that the UE economy might not be strong enough to to justify ending its stimulus package.

William Dudley, the head of the New York Federal Reserve, told an audience in New York that:

Economic circumstances could diverge significantly from the FOMC’s expectations.

If labor market conditions and the economy’s growth momentum were to be less favorable than in the FOMC’s outlook — and this is what has happened in recent years — I would expect that the asset purchases would continue at a higher pace for longer.

The suggestion that the Fed might not start to 'taper' its bn/month bond-buying programme is music to the markets' ears, it seems…..

3.20pm BST

EU budget deal cheers Brussels, but Cameron shows concern

European Commission President Jose Manuel Barroso, left, and Irish Prime Minister Enda Kenny participate in a media conference at EU headquarters in Brussels on Thursday, June 27, 2013.
European Commission President Jose Manuel Barroso, left, and Irish Prime Minister Enda Kenny announcing today’s deal. Photograph: Virginia Mayo/AP

Eurocrats are in cheerful mood as they prepare to get the EU summit underway.

Not only because of the bank rescue framework agreed overnight. but because a 'political deal' has been struck over the sticky problem of the next EU budget.

The 'multi-year financial framework', covering spending for the next seven years, was agreed back in February and famously included the first-ever real-term cut in spending. MEPs, though, promptly blocked it.

But this morning, European Commission president Jose Manuel Barroso and Irish PM Enda Kenny (in his final few days holding the rotating presidency) announced that a deal had been reached.

Under the compromise, the final budget size is unchanged at €960bn, but there will be more flexibility about how unspent commitments can be reassigned between budget areas, and different years.

Barroso declared that the plan is a boost for Europe, as it will help Brussels to invest in projects to boost growth and employment:

This is really important for these citizens and these regions in Europe that badly need investment.

European Parliament President Martin Schulz said he was "optimistic" that MEPs will give their approval next week.

AP's take is here: EU strikes .3 trillion multi-annual budget deal

and the FT's is here: EU reaches €960bn budget deal

Britain's Prime Minister David Cameron arrives at a European Union leaders summit in Brussels June 27, 2013.
Photograph: FRANCOIS LENOIR/REUTERS

David Cameron appeared to show some concern about today's agreement, though, telling reporters in Brussels that Europe must stick to the terms of the original deal.

The key point is that not all the commitments in the EU budget are actually delivered. This extra flexibility agreed today could mean less money remains unspent.

2.03pm BST

Heads-up: European leaders have started arriving for the EU Council summit in Brussels.

Updated at 2.03pm BST

1.34pm BST

Photos: Portugal’s general strike

Portugal's anti-austerity general strike is in full swing. A group of protesters in Lisbon blocking a road to show their opposition to the country's deep spending cuts:


Protesters holding a banner that reads in Portuguese: “We Stop the Austerity. General Strike”, block one of the main Lisbon avenues. Photograph: Francisco Seco/AP
Portuguese police officers try to clear the street of protesters as they block one of Lisbon's main avenues during a general strike,
Portuguese police officers try to clear the street of protesters. Photograph: Francisco Seco/AP

Local reports say that while transport links were badly hit, few private workers are taking part in the walkout – partly because they cannot afford to lose a day's pay.

Carlos Silva, leader of Portugal's UGT union, acknowledging that the private sector has less opportunity to take part in industrial action.

Silva also declared:

These austerity policies punish the country, violate the people, penalise workers and pensioners, so the strike will be a cry of resistance to these policies.

A woman passes by the closed ticketing at Santa Apolonia station during the general strike in Lisbon, on June 27, 2013.
A woman passes by the closed ticketing at Santa Apolonia station during the general strike in Lisbon. Photograph: PATRICIA DE MELO MOREIRA/AFP/Getty Images

12.41pm BST

Greek opinion poll data

Over to Greece, and the latest opinion poll data shows that the governing New Democracy is maintaining a narrow lead.

Despite the row over the closure of state broadcaster ERT, ND came top with 22% of support followed by the opposition left-wing Syriza group on 20.8%.

The extremist Golden Dawn party is still third on 9.1%, then PASOK (ND's junior coalition partner) on 6.1%, Independent Greeks on 5.5% and the Communist Party on 5.1%.

Democratic Left, which quit the coalition last Friday, is now polling just 3% support – any lower and it won't qualify for seats in the parliament.

12.30pm BST

Irish recession: what the analysts say

Here's a round-up of economist reaction to Ireland's fall back into recession, via Reuters.

AUSTIN HUGHES, CHIEF ECONOMIST, KBC IRELAND

The economy is on a slightly weaker trajectory than was generally envisaged, but it's not entirely surprising given the global backdrop that exports have performed poorly." "The economy is still making uneven progress, but it's very fragile and it probably means we have to be very careful about the scale of adjustment in budget 2014. For my money, this suggests we use most of the promissory note savings on the economy and avoid even weaker growth over the next year." "These numbers are very volatile, the reality is there is still a marginal improvement in employment, so i don't think these numbers are saying we are tumbling into a dramatically poorer condition. But it does say that it is uneven, any sort of progression is very modest. Its flatlining.

PHILIP O'SULIIVAN, CHIEF ECONOMIST, INVESTEC IRELAND

It's not a huge surprise what's out today. Merchandise exports were quite weak due to patent cliff effects, so there was going to be a bit of an expectation that that was going to be a bit of a drag anyway." "The other thing to note is that retail sales were quite poor too which was a bit of a negative read through in terms of personal consumption, and a certain amount of that was down to a disappointing couple of months for car sales. Things should get better as the year goes on.

ALAN MCQUAID, ECONOMIST, MERRION STOCKBROKERS

It's not a good number and it clearly shows that we're not immune to what's going on globally. Given these numbers you'd be hard pushed to have growth for the year as a whole." "Whether it puts your bailout into question… I think the NTMA (debt agency) would argue that they're flush with money so there's no serious issue there and I think if they want to leave (the bailout), they will leave.

Updated at 12.30pm BST

11.41am BST

Ireland in recession – the details

The news that Ireland's economy has shrunk for three quarters in a row has dashed any hopes of a recovery, my colleague Lisa O'Carroll writes.

Today's revised gross domestic produce for 2012 show the economy flatlined with GDP rising by just +0.2%, revised down from +0.9%.

GDP for the third and fourth quarters of 2012 was lower than previously stated, at -1% and -0.2%, the central statistics office in Ireland said on Thursday. 

The economy continued to contract in the first quarter of 2013 when GDP growth stood at now -0.6%. This was due to falling exports and weakening consumer spending, said the CSO.

Karl Whelan, professor of economics at University College Dublin, tweeted that the Irish ministers should heed the data and stop discussing Ireland's 'recovery':

The full release is here. It shows that Gross National Product (which strips out foreign companies based in Ireland) did rise during the last quarter.

Irish GDP/GNP data
Photograph: Ireland’s Central Statistics Office

Updated at 11.41am BST

11.18am BST

Ireland back in recession

Now this is a nasty surprise. Ireland is back in recession after its GDP data was revised sharply lower.

Figures just released show that the Irish economy has actually been shrinking for the last nine months, including a 0.6% contraction in the first quarter of this year.

Details and reaction to follow

10.53am BST

Key event

Back to the EU bank bailout deal agreed in the early hours in Brussels (in which bondholders, shareholders and depositors with over €100,000 in the bank would contribute to future rescue deals if a bank failed).

Tim Dolan, a partner at the international law firm SJ Berwin, comments on the deal:

This deal creates a clear set of rules for dealing with failing banks which should lead to a level playing field between banks based in larger and smaller European nations. The risk with this deal was that smaller European nations would be left having to require failing banks to resort to obtaining support from creditors while larger European nations would be able to support failing banks by deploying taxpayer support. This deal should ensure broad consistency.

All creditors of banks, and particularly unsecured bondholders, need to understand that there is a greater risk that they will suffer some loss should their bank fail in the future. There is also a greater risk that, in the event of a complete collapse of a bank, shareholders and large depositors will be required to provide some support before the taxpayer.

10.16am BST

Updated at 10.30am BST

10.12am BST

10.11am BST

Here's some reaction to the UK GDP revisions (see 9.35am onwards) from Jeremy Cook, chief economist at the foreign exchange company, World First:

This data release highlights the problems that Britons are currently facing in a nut shell. Levels of disposable income have fallen to the lowest since 1987 as inflation bites at wage packets whilst savings ratio falls have shown that people are using life savings to keep their heads above water.

Whether the UK entered a double-dip or, as today’s numbers show, it didn’t matters little to the man on the street who is seeing large falls in real term wage growth as a result of the lack of business output.

Sterling has fallen in the aftermath of this announcement, and although this data is 3 months old and could be considered stale, the lack of real improvement since leaves the government and the new Bank of England Governor a lot to do.

10.08am BST

Disposable income ravaged

Another gloomy point in today's UK economic data – disposable income fell at its biggest rate since 1987 in the first three months of this year.

9.57am BST

The pound has fallen since the new GDP data was released, down almost half a cent against the US dollar at .526.

Updated at 10.02am BST

9.57am BST

Jonathan Portes of the National Institute of Economic and Social Research makes the same point. Today's new data shows the UK suffered a severe downturn, and has only managed a feeble recovery since.

9.53am BST

Britain's economy is still 3.9% lower than its pre-recession peak, the ONS's new data shows (see 9.35am onwards).

That's even worse than the 2.6% previously estimated. So we've lost the double-dip, but the original dip was even more of a shocker.

9.51am BST

9.45am BST

Instant reaction

The elimination of Britain's double-dip recession is getting plenty of attention, but the fact that the original downturn was even more severe is more important.

Chris Giles of the Financial Times comments:

Updated at 9.45am BST

9.41am BST

Key event

The ONS also confirmed that Britain's economy grew by 0.3% in the first three months of this year, as previously expected. However the year-on-year figure has been revised down to just +0.3%, from +0.6% before.

That's because of the revisions the ONS has made to legacy data.

Updated at 9.41am BST

9.35am BST

ONS: double-dip never happened but UK recession was deeper

It's official, Britain never suffered a double-dip recession.

The Office for National Statistics has just reported that the economy did not shrinking in the first quarter of 2012, as previously thought.

However, it's not all good news. After carrying out a major revision of recent economic data, the ONS has calculated that UK GDP actually tumbled by a jaw-dropping 7.2% in the aftermath of the financial crisis of 2008. Not 6.3% as previously thought.

More to follow!

9.27am BST

General strike under way in Portugal

Workers hold flags at a picket line at the beginning of a general strike in Lisbon June 26, 2013.
Last night, workers gathered at a picket line in Lisbon at the beginning of today’s general strike. Photograph: JOSE MANUEL RIBEIRO/REUTERS

The general strike called by Portugal's two biggest unions is underway, as workers register their anger over the country's austerity programme.

Reuters reports that public transport has come "to a virtual standstill":

Trains were not running, metro and ferry services stopped in Lisbon, and many bus routes were suspended, forcing those who chose to go to work take longer, alternative routes that were served by fewer buses than usual. State-owned airline TAP has warned of possible disruption but not cancelled any flights.

9.07am BST

German unemployment data released

Germany's labour market continues to outperform the rest of the eurozone.

Data just released shows that the jobless total fell by 12,000 this month, on a seasonally adjusted basis. Economist had expected a rise of 8,000. It leaves Germany's jobless rate flat at 6.8% (May's original reading of 6.9% was revised down) compared to a eurozone average of 12.2%.

8.56am BST

Our Europe editor, Ian Traynor, suggests we shouldn't expect major progress at the EU summit which starts later today:

8.47am BST

Reuters' Hugo Dixon gave the EU deal (see opening post for details) a cautious welcome:

Updated at 8.47am BST

8.45am BST

French consumer confidence hits alltime low

Gloom in France — consumers are at their most pessimistic since records began in 1972, according to data released this morning.

The French statistics agency INSEE reported that consumer confidence slid again, to its lowest level since it began monitoring morale in 1972. French consumers are also more downbeat than ever before about their future living prospects.

At just 78, the reading was somewhat shy of analyst forecasts of 81, and far from the long-term average of 100.

The French economy is currently in recession, with unemployment moving steadily higher, and the government trying to cut public spending to hit EU deficit targets. Consumers have plenty of reasons to worry.

8.34am BST

Morgan Stanley's analysts aren't too impressed with the plan:

8.31am BST

The Wall Street Journal flags up that weaker euro-zone governments would be able to borrow from the currency union's rescue fund, the European Stability Mechanism, to top up their own backstops. But it won't be easy:

Taxpayer-funded bailouts will only be allowed under "extraordinary circumstances," when it is technically impossible to impose losses on certain creditors in a rush or when a government is worried about effects on financial stability, officials said. Such exceptions will have to be authorized by the European Commission, the EU's executive arm.

Rich countries like Germany and Finland worked hard to make it as difficult as possible for poorer countries to tap the euro-zone rescue fund.

Ministers agreed that the common fund could eventually be used to recapitalize failing banks directly, but only to protect depositors—not shareholders or bondholders—and if the bank's home government has run out of money.

More here.

8.21am BST

What the ministers said

Speaking to reporters after the deal was agreed, Dutch finance minister Jeroen Dijsselbloem argued it was a significant step forward:

If a bank gets in trouble we will now, throughout Europe, have one set of rules on who pays the bill," he said.

"The financial sector itself will now to a very, very large extent become responsible for dealing with its own problems.

(that's from the BBC's take on the deal)

Dijsselbloem had been heavily criticised a few months ago for indicating that the Cyprus bailout (which forced massive losses on some large depositors) was a template for future rescue deals. He backtracked on the comments, but this deal confirms that the Cypriot experience could be repeated across the continent.

And German finance minister Wolfgang Schaeuble confirmed this point, telling reporters:

They can affect German savers just as well as they can affect any other investor in the world.

France's Pierre Moscovici told the press pack that Europe's bailout fund could still be used for bank rescues (after creditors have been hit). Reuters got the quotes:

French Finance Minister Pierre Moscovici signalled that ministers also agreed to French demands that the euro zone's rescue fund, the European Stability Mechanism, can be used to help banks in the 17-nation currency area that run into trouble.

It makes the whole thing coherent," said Moscovici. "It creates a solidity for the system and a system of solidarity.

Finish Minister of finance Jutta URPILAINEN (L) is talking with the swedish Minister of finance Anders BORG (C) and the Romanian Minister or Budget Liviu VOINEA (R) prior an european finance Ministers meeting in the EU council headquarter.
Finish minister of finance Jutta Urpilainen (left) talking with Sweden’s Anders Borg and Romania’s Liviu Voinea (right) before last night’s meeting began. Photograph: Thierry Tronnel/Corbis

Updated at 8.26am BST

8.07am BST

Bank rules agreed: media round-up

In the Financial Times, Alex Barker describes the deal as the eurozone's "flagship effort to bolster Europe’s patchy national defences against bank failure".

Barker explains how ministers finally agreed some flexibility:

Under the compromise, after the minimum bail-in is implemented, countries are additionally given an option to dip into resolution funds or state resources to recapitalise the bank and shield other creditors. The intervention is capped at 5 per cent of the bank’s total liabilities and is contingent on Brussels approval.

This issue of national flexibility bedevilled the talks for months, as member states jockeyed to tailor the rules to suit their own banks and past experiences of handling financial crises. A German-led group pushed for strict, automatic bail-in procedures, while France and some non-eurozone countries demanded more national discretion.

Jurgen Baetz of Associated Press writes that the deal gives "new credibility" to Europe's push for banking union.

He writes:

Following the 2008-2009 financial crisis, countries like Ireland, Britain and Germany each had to pump dozens of billions of fresh capital into ailing banks to avoid the financial system from collapsing.

To avoid that happening again, finance ministers discussed who should contribute in which order and how much to a bank's rescue – a so-called bail-in – so that ordinary taxpayers aren't left with the bill.

"Bail-in is now the rule," stressed Ireland's Finance Minister Michael Noonan, adding the rules put an end to moral hazard by making it clear that banks will suffer before the government might come in to help, if at all. "This is a revolutionary change in the way banks are treated," he added.

But John O'Donnell and Robin Emmott of Reuters warn that banking union is far from agreed:

Thorny issues lie ahead, not least whether countries or a central European authority should have the final say in shutting or restructuring a bad bank.

The European Commission, the EU executive, is expected to unveil its proposal for a new agency to carry out this task of "executioner" as early as next week, officials said.

"The most important discussion has yet to start and that is how decisions on restructuring will be made," said Nicolas Veron, a financial expert at Brussels-based think tank Bruegel. "It's premature to say that Europe is getting its act together."

7.35am BST

New bank rescue rules force losses on creditors

Good morning, and welcome to our rolling coverage of events in the eurozone, the world economy and the financial markets.

Europe's finance ministers have finally agreed new rules to handle the cost of future bank bailouts, which will see losses forced onto creditors such as large depositers as well as bond holders and shareholders.

After another late-night session in Brussels, ministers hammered out rules that will mean creditors are 'bailed in' to help cover the cost of future rescue deals. It's meant to end the era of taxpayers automatically picking up the tab, and should help Europe move towards proper banking union.

The key to the deal is that 8% of a failing bank's total liabilities – first shareholders, then junior bondholders, then 'uninsured deposits' (over €100,000) – must be effectively 'wiped out' before public funds can be used.

Deposits of under €100,000 remain protected. And the deal also puts big deposits held by large companies ahead in the firing line before those of smaller companies and individuals.

Michael Noonan, the Irish finance minister, described it as a revolutionary change in the way banks are treated in the European Union.

The deal also leaves some discretion for national goverments to decide whether to step in, as Jurgen Baetz of Associated Press explains:

Those forced losses will go as high as 8% of a bank's total liabilities, only then would national governments kick in and top it up with a bailout possibly worth another 5% of the liabilities.

The negotiations were complicated because some nations feared being bound by overly rigid European rules. Others warned that too much flexibility would create new imbalances between the bloc's weaker and stronger economies and a lack of common rules would destroy certainty for investors and erode trust in the financial system.

Another key point: member states are expected to set up "ex-ante resolution funds", eventually holding a sum equal to 0.8% of national deposits, to fund their own contributions.

The draft deal still needs the approval of the EU parliament, and is expected to begin in 2018.

I'll pull together reaction to the deal, and more details, shortly.

The deal comes before an EU summit where countries could agree further steps to move closer to full banking union. Leaders will also discuss plans to fight Europe's youth unemployment crisis.

Also coming up today — a general strike is taking place in Portugal in protest at the country's ongoing austerity measures; and new GDP data for the UK is released at 9.30am BST.

Updated at 8.10am BST

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Highlights of the EC’s annual budget review. Barroso: We need growth and reforms. France urged to fix its competitiveness, while Germany told to let wages rise. Italian PM: we can be proud. Bank of Canada leaves rates unchanged…

 


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6.59pm BST

Closing summary

That's all for today, after quite a busy session.

Here's a very brief closing summary.

The European Commission has given seven countries more time to hit their budget targets, as it urged member states to back a new push on structural reform and growth.

Spain, France, Poland and Slovenia get another two years, while a 12-month extension was handed to the Netherlands, Portugal, and Belgium (which also avoided being fined despite failing to address its budget deficit).

Highlights from 1.12pm

Summary of the key points here

Analysis here

Early reaction here

The OECD has lowered its growth forecasts for the world economy. In its latest economic update, the Paris-based organisation expressed particular concern about the eurozone – urging the European Central Bank to consider embarkin on quantitative easing. Highlights from 10.12am.

World markets fell, with the FTSE 100 dropping almost 2%. Closing prices here, and reaction at 5.25pm.

The day began with the IMF lowering its growth forecast for China. See 7.52am.

And ended with a successful-looking auction of US debt. See 6.29pm

And also saw Spanish firemen clash with riot police in Barcelona. See 5.58pm

In Greece, the Pasok party was hit by another defection. See 4.16pm

While the German jobless rate remained at 6.9%, despite rising by 21,000 on a seasonally adjusted basis. See 9.12am onwards.

Thanks, as ever, and goodnight. GW

Updated at 7.02pm BST

6.40pm BST

France's president, Francois Hollande, has denied that Brussels can order Paris around, following the recommendations on labour and pension reform announced by the EC today.

AFP newswire reports that Hollande has said:

The [European] Commission doesn't have to dictate to France what it has to do. It simply has to say that France must restore its public accounts.

6.29pm BST

The US government's much-anticipated auction of bn of five-year bonds appears to have gone smoothly.

The debt was all sold at yields of up to 1.045%, which Reuters says was in line with market expectations. The bid-to-cover ratio was 2.79, which means total bids were almost three times as large as the amount of debt on offer.

And US 10-year Treasury bills are rising in value since the auction results hit the newswires – suggesting it has been well received.

Updated at 6.30pm BST

5.58pm BST

Photos: Spanish firemen protest

Just in – photos of a protest by Spanish fireman in Barcelona against the government's spending cuts, which cuminated in clashes with riot police outside the Catalan parliament:

Firemen march against sector budget cuts carried on by Catalonia Government
Photograph: Lino De Vallier/Demotix/Corbis
Firemen burned coffins that symbolized the death of the public services due to austerity measures in front of the Catalonia Parliament.
Firemen burned coffins that symbolized the death of the public services due to austerity measures in front of the Catalonia Parliament. Photograph: Lino De Vallier/Demotix/Corbis
Riot police try to stop the entrance to the Catalonia Parliament at firemen protesting for sector budget cut in Barcelona.
The rally ended in front of the Catalonia Parliament with clashes with riot police. Photograph: Lino De Vallier/Demotix/Corbis

Updated at 6.00pm BST

5.25pm BST

What the analysts say

Here's some analyst reaction to today's heavy falls on Europe's stock markets (see 4.49pm for the closing prices)

Michael Hewson of CMC Markets: ToTo is the new RoRo

In an almost complete reversal of yesterday’s price action the bears have reasserted themselves today, overturning the brief return to optimism as European equity markets slide back sharply on the back of rising bond yields.

The yield on US treasuries rose to its highest level in 12 months on growing concerns that the Fed could well be getting nearer to the point of a possible paring back in its current asset purchase program.

Instead of the usual “risk on, risk off” scenario (RoRo), we’ve become used to, now we have to contend with the new “taper on, taper off” scenario or (ToTo) which is likely to dominate market sentiment until the next Fed meeting on June 18th and 19th, and even possibly beyond that.

This concern saw Europe’s markets open lower this morning, and the declines had further fuel added to the fire by the OECD who in their latest assessment of the global economy revised their outlook down again, this time from 3.4% to 3.1% on a global basis.

The reductions in Europe were even deeper with a revision of EU GDP down from a contraction of 0.1% to a contraction of 0.6%, while France’s GDP target was slashed as well from 0.3% to -0.3%.

The OECD also voiced its concern that without some form of QE in Europe and negative deposit rates we could well see further forecast reductions in the coming months.

Retailers have also taken a hit after CBI retail sales plunged the most in 16 months in May. (details at 11.27am). It seems higher energy prices and below inflation wage growth along with tax changes in the new tax year have constrained consumer spending.

Yusuf Heusen of IG: is the market coming or going?

Once again the uptrend is looking under threat.

Yesterday’s impressive gains are a distant memory as the FTSE gives up the ground gained on Tuesday and back to levels seen last Thursday. It’s been a while since we’ve seen such volatility in both directions, which is at least a welcome reminder that markets can go down as well as up, but two consecutive triple-digit days suggests a market that doesn’t know whether it’s coming or going. Too many had probably forgotten that universal truth in the steady run higher this year.

A warning from the OECD about the negative impact of the end of QE on global growth prospects has reignited fears that any reduction in easing will bring the global party to a halt.

Such fears are understandable, but perhaps overdone; having seen the turmoil caused by even hinting at a reduction in QE, Ben Bernanke is going to tiptoe very carefully into this area

Updated at 5.25pm BST

5.01pm BST

Spain's slow struggle to emerge from a toxic mix of high unemployment, recession and swollen budget deficits looks set to take even longer than expected after both Brussels and the OECD changed their tunes on the country's future.

Our Madrid correspondent, Giles Tremlett, explains:

The OECD foresees the economy shrinking a further 1.7 percent this year, while growth of just 0.4 percent in 2014 will not create jobs – with growth now the major concern, ahead of the deficit.

It sees Spain's deficit barely shifting next year, with a drop from 7% to 6.9% of GDP, while unemployment is set to rise to 28%.

Brussels has also heard the warning bells and turned away from strict austerity, changing the country's deficit target to 6.5% of GDP from the previous 4.5%.

Even reaching this target, however, will require fresh measures – with Brussels demanding further tax hikes, more labour reform and a radical change in the way Spain calculates its pension payments.

These will have to be linked to the long-term sustainability of the pension system in an ageing population rather to inflation. The expected result is for pensions to fall in real terms.

Updated at 6.04pm BST

4.49pm BST

European markets slide

A gloomy day in Europe's stock markets has ended with heavy falls on the major exchanges.

In London the FTSE 100 has dropped almost 2%, down 134 points at 6627, with 98 shares falling (utility firms National Grid and United Utilities both fell 5%).

Here's a picture of the damage, including the latest prices from Wall Street.

Equity markets, at European close, May 29 2013
Photograph: /Thomson Reuters

As Brenda Kelly of IG explained at lunchtime (see 12.37pm), shares have been hit by several factors – including this morning's downgraded OECD forecasts, fresh fears that the Federal Reserve might tighten its QE programme, predictions that the Japanese Nikkei will fall tomorrow, and a bout of profit taking after the recent rally.

More reaction to follow….

4.30pm BST

ECB: Banks still face stability risks

The European Central Bank is warning this afternoon that Europe's banks to be further strengthened.

The ECB's six-monthly review of the eurozone financial sector warned that it is still fragile, and that stresses in the 'real economy' could easily cause new problems:

Here's the four main risks to stability (via Reuters):

  1. Further decline in bank profitability, linked to credit losses and a weak macroeconomic environment
  2. Renewed tensions in sovereign debt markets due to low growth and slow reform implementation
  3. Bank funding challenges in stressed countries
  4. Reassessment of risk premia in global markets, following a prolonged period of safe-haven flows and search for yield

Quite a wide-ranging set of threats — particularly as the eurozone economy continues to contract.

Vitor Constancio, the ECB's vice-president, told reporters:

Financial stability has improved but remains fragile … due to weak growth and banking sector vulnerabilities.

There is this disconnect between the significant improvements in financial markets in general and the real economy – and the situation in the real economy is affecting banks….So this is a cause of concern.

4.16pm BST

MEP’s defection leaves Greece’s Pasok party on the ropes

Over in Greece our correspondent Helena Smith reports that the formerly all-powerful socialist Pasok party has suffered yet another defection over government economic policies.

She writes:

If ever proof was needed that the once mighty socialist Pasok is imploding at an alarming rate, it came today when the prominent euro MP Kriton Arsenis also threw in the towel prompting a furious reaction from the party.

In an incendiary letter to party chief Evangelos Venizelos, the MEP said he had decided to become an independent because that way he could best continue the fight against the “irrational and destructive policy of unilateral austerity in Europe and Greece.”

A former green activist, Arsenis wrote that he was vehemently opposed to the privatization program ordered by the country’s troika of creditors at the EU, ECB and IMF and sale of “profitable” public utilities and sate-owned land which Pasok has endorsed as a partner in prime minister Antonis Samaras’ tri-partite coalition.

PASOK party leader Evangelos Venizelos (C) leaves the Prime Minister's office after a meeting in Athens, Greece, 27 May 2013.PANTZARTZI
PASOK party leader Evangelos Venizelos, pictured on Tuesday night.Photograph: SIMELA PANTZARTZI/EPA

Arsenis's defection – on the heels of last week’s decision by former EU commissioner and stalwart party cadre Anna Diamantopoulou to also break ranks — appears to have unleashed a massive row with the party demanding this afternoon that Arsenis return the seat. 

Helena explains:

In a withering statement, Fofi Gennimata, Pasok’s spokeswoman, said it was now up to Arsenis, who was appointed to the parliament by Venizelos’ predecessor George Papandreou, to do the “decent” thing. “He was not elected himself but appointed by the previous president of Pasok. This position belongs to the party. The euro parliamentarian post belongs to Pasok,” she told a local radio station. “So whoever does not wish to have anything to do with Pasok … I think must first leave that position and then make clear their objections which we can then talk about.”

Earlier this week Thanassis Ikonomou, another MP, also defected to the left-wing Dimar, saying “for a long time now Pasok has lost all its personality and identity.” 

The party’s free fall has become a major headache for the pro-bailout Samaras alliance with analysts fearing it could further weaken a coalition already combatting daily (if abated) anger over austerity measures.

Updated at 4.16pm BST

4.04pm BST

We shouldn't get carried away with suggestions that Europe is abandoning austerity altogether.

Even though Spain, France, Portugal, Poland, the Netherlands and Slovenia are getting up to two years more time to lower their deficits, Brussels is still pushing for some of its favourite measures including labour market reforms, welfare adjustments and (although slower) fiscal consolidation.

Open Europe, the think tank, has rounded up some of the key recommendations, and concludes:

For all the talk of this being the ‘end of austerity’ or ‘austerity in retreat’, is much really changing? Sure, there is some tinkering with timelines for deficit reduction (Spain, France and others have been given more time to cut public deficit), but ultimately the eurozone is still going along the same policy path – just slightly more slowly.

It adds that structural reform, welfare reform, fiscal consolidation economic liberalisation are all necessary, but adds:

The question remains whether they can all be done at the same time by a group of countries which are closely interlinked, and many of which are currently in recession.

And as an example, here's France's to-do list:

  • France should do more to cut labour costs, in particular by reducing social security contributions for employers.
  • The European Commission says France should adopt new measures by the end of the year to “bring its pension system into balance in a sustainable manner no later than 2020.” 
  • France should improve the business environment and help its firms become more competitive;
  • France’s unemployment benefit system should be “urgently” reformed, so that it is sustainable but also “provides adequate incentives to return to work”.
  • France should do more to tackle labour market segmentation, and remove “unjustified restrictions in the access to and exercise of professional services.”

More here: Despite much fanfare, the European Commission recommends much of the same for the eurozone

Updated at 4.04pm BST

3.35pm BST

Video: OECD chides eurozone for lagging behind

The OECD underlined the challenges facing the eurozone today, when it slashed its forecast for 2013 to a 0.6% drop in GDP. 

Here's a video clip of Pier Carlo Padoan, chief economist, explaining why Europe is lagging:

(if you scroll back to 10.12am there are details of the OECD's new forecasts, in which it predicted slower growth across the world economy).

3.27pm BST

Central bank news – Canada left rates unchanged at 1% at its monetary policy meeting today (quite a rarity, with so many choosing to ease borrowing costs in recent weeks).

Here's the statement from the Bank of Canada, which includes this assessment of the world economy:

In the United States, the economic expansion is progressing at a modest pace, with continued strengthening in private demand partly offset by fiscal consolidation.

Japan’s economy is beginning to respond to significant policy stimulus. Europe, in contrast, remains in recession. Growth in China has continued to ease from very strong rates, weighing somewhat on global commodity prices.

The Bank continues to expect global economic activity to grow modestly in 2013 before strengthening over the following two years.

Updated at 3.28pm BST

3.16pm BST

Italian government: we can be proud

Italy's new prime minister, Enrico Letta, has declared that the Italian people can be "proud" of the news that the country has been removed from the EC's excessive deficit list:

Our Rome correspondent, Lizzy Davies, reports that Letta also paid tribute to the efforts of his predecessor, Mario Monti, who suffered a bruising rebuff from the electorate in February's general election.

News from Brussels is not generally something to celebrate for the Italians, so the European Commission's announcement today that it is recommending the abrogation of the eurozone's third-largest economy from its Excessive Deficit Procedure (EDP) has understandably been welcomed in Rome.

In a statement on the Italian government's website, prime minister Enrico Letta said the move was "cause for great satisfaction" and something of which the Italian people should be "proud". 

The new premier, whose fragile grand coalition government was sworn in just a month ago, said Italy was now "reaping the rewards" of the previous technocratic government, which pushed the country through a series of punishing austerity measures. He expressed his "personal gratitude" to Mario Monti, and affirmed his own government's intention to stick to fiscal goals set down by Brussels. 

The move, which had been long anticipated but confirmed only this afternoon, has been hailed in the Italian media as a "shot of oxygen" for the new government. It is estimated that it will free up around €8bn of public money which would have gone on getting its annual borrowing down under the EDP. 

However Letta has been careful not to raise expectations, reportedly saying earlier this week that the benefits would only been seen on next year's budget. 

He was quoted in the Italian press as telling a meeting of regional governors: "As we know, it will not free up resources immediately."

Updated at 3.16pm BST

3.08pm BST

Mariano Rajoy, Spain's prime minister, has welcomed the confirmation of a two-year extension to bring its deficit below 3%. He declaried it as a sign that austerity is moving off the agenda, flags up journalist José Miguel Sardo:

Updated at 3.09pm BST

3.05pm BST

3.03pm BST

EC’s Slovenian worries

Another point to flag up from the EC's recommendations today – it is worried about the Slovenian banking system.

Its nine recommendations for Slovenia include this ominous warning:

Slovenia should arrange an independent review of the entire system, stand ready to re-capitalise further banks, if necessary, and adopt a comprehensive banking sector strategy.

and also:

Linked to the recommendation above, Slovenia should also review the supervision of the banking sector and act to strengthen its capacity and transparency.

Slovenia is already battling to avoid being forced to take a bailout, primarily due to the problems in its mainly state-owned banking sector.

(hat-tip to fastFT, who have more details on their new site)

2.44pm BST

Summary: what the EC has done:

A quick summary of the main decisions from the European Commission:

• Six countries have been given more time to bring their deficits under 3% of GDP: Spain, France, Poland and Slovenia get two more years, while the Netherlands and Portugal get a year each.

• Belgium has also been given another 12 months to correct its deficit, but will not be fined despite the lack of any 'effective action' in the past

• Five countries are being released from the Excessive Deficit Procedure having mended their ways: Hungary, Italy, Latvia, Lithuania and Romania.

• An Excessive Deficit Procedure is being opened on Malta, which will take the total number of countries under a EDP to 16.

And here's the key quote from President Barroso:

Now is the time to step up the fundamental economic reforms that will deliver growth and jobs, which our citizens, especially our young people, anxiously expect.

This is the only way to address the two lasting legacies of this crisis – the serious loss of competitiveness in many of our Member States, and persistent unemployment, with all its social consequences.

The recommendations issued by the Commission today are part of our comprehensive strategy to move Europe beyond the crisis. They are concrete, realistic, and adapted to the situation of each of our Member States.

2.18pm BST

EC’s annual budget report: instant reaction

Here's the first reaction to the Commission's new country-specific recommendations:

2.15pm BST

Olli Rehn also singled out the French pension system, saying that the Paris government must clarify its reform plans so that the system is sustainable.

2.08pm BST

2.08pm BST

Rehn summed up the EC's new budget targets as an "important breathing space" for countries in which member states must use to implement structural reforms.

1.58pm BST

Lucky Belgium

Belgium appears to have avoided being fined for violating the Commission's budget rules:

1.57pm BST

Rehn reiterates Barroso's point that it is "essential" that France uses extra time to tackle the underlying problems with its economic competitiveness.

1.53pm BST

Rehn: Malta back on the excessive deficit list

Now Olli Rehn, the commissioner for monetary policy, is speaking in Brussels.

He explains that the Commission is recommending that Hungary, Italy, Latvia, Lithuania and Romania should all be removed from the 'excessive deficit' list. However, it wants to put Malta back on the list, just six months after removing it.

Rehn also defends the EU's growth and stability pact:

1.48pm BST

Barroso: Italy can’t stop

Jose Manuel Barroso
Photograph: EC

Finally, Jose Manuel Barroso warns that Italy cannot abandon its austerity programme, despite being removed from the list of countries with excessive deficits.

He explains that its national debt, at over 120% of GDP, remains a concern.

The high debt/GDP ratio is still a burden to the Italian economy…

That is why we cannot say Italy should relax its efforts.

Updated at 1.49pm BST

1.42pm BST

Barroso: Germany should let wages rise

Next question: Should Germany do more to help the rest of the eurozone?

Barroso replies that the EC would like to see Germany pay packets rise:

Germany should ally wages with productivity – that means increased wages.

He also warns that it is currently too difficult for small firms from outside Germany to access its economy, as our Europe editor Ian Traynor flags up from the press conference:

1.39pm BST

The live feed just froze for a moment, so I missed Barroso cracking a joke (of sorts):

1.37pm BST

Barroso: France must use extra time to fix economy

Question time, and Barroso denies that the EC has bowed to pressure from Paris when it gave France an extra two years grace to lower its deficit.

It was our decision, he insists, adding:

We believed, on a very sound basis, that this is what makes sense from an economic and financial point of view.

France must use this time to make its economy more competitive, he adds.

Updated at 2.05pm BST

1.33pm BST

Barroso: more ambition needed on growth

Jose Manuel Barroso says that the EC's main recommendation this year is that all member states must be more ambitious on making economic reforms to boost economic growth.

He cited the need to improve the single market for services, and to make changes to labour reforms.

He also said member state must monitor the "critical relationship" between wage rises and productivity, suggesting that unemployment would increase if wages rose too quickly.

He ended by calling for a new "European consensus" , saying this was vital for confidence, and thus growth.

1.26pm BST

The EC's new country-specific recommendations are online here.

1.25pm BST

Barroso adds that talk of a battle between growth and austerity has been futile. The key, he insists, is to make structural reforms to deliver long-term growth,

1.24pm BST

Barroso: we have time to slow pace of consolidation

Jose Manuel Barroso is outlining the EC's new recommendations now:

He say Europe now has time to slow down the pace of fiscal consolidation, which is why it has decided to allow France, Spain, Poland, Slovenia the two-year extensions just announced, and the 12-month extensions for the Netherlands and Portugal.

He is explaining that these member states need to use the extra time to make structural reforms.

But because those changes will take time to deliver results, Barroso adds, "specific focused action is needed for the unemployed, especially young people".

Updated at 1.45pm BST

1.19pm BST

Breaking: the EC has agreed to give six European countries more time to bring their deficits under the official target.

France, Spain, Poland and Slovenia are all being granted two-year extensions.

Netherlands and Portugal both get one-year extensions.

And as expected, the EC is also ending its 'excessive deficit procedure' against Italy, recognising the fact that its deficit is now below the 3% mark.

Updated at 1.23pm BST

1.12pm BST

EC announces country-specific recommentations

The European Commission is announcing the details of its assessment of the EU member states national budgets NOW.

A press conference is getting underway in Brussels – it will be streamed here.

1.04pm BST

US bond sale looms

Speaking of the markets, the US government will be selling bn of five-year debt this afternoon (1pm New York time, or 6pm BST).

That sale will be closely watched by bond investors, after the yield on 10-year Treasuries spiked 16 basis points to 2.17 per cent overnight

(that's via fastFT, the Financial Times's new rolling markets news and views service which launched this morning, and is well worth checking out).

Tuesday's rise in US bond yields has been blamed on concerns that the Federal Reserve will start 'tapering' its quantitative easing programme soon, especially after strong consumer confidence and house price data from America on Tuesday.

12.37pm BST

European markets in retreat

The FTSE 100 is flirting with a triple-digit loss as Europe's financial markets turn south again.

Here's the latest prices:

FTSE 100: down 98 points at 6664, -1.44%

German DAX: down 140 points at 8340, – 1.6%

French CAC: down 54 points at 3997, -1.3%

Spanish IBEX: down 61 points at 8449, -0.7%

Italian FTSE MIB: down 120 points at 17398, -0.7%

I just spoke with Brenda Kelly, senior market strategist at IG, who cited three reasons for falling markets;

1) the OECD's new, lower economic forecasts (and the news that the IMF lowered its growth forecast for China)

2) Concern over Japan, after a coalition party member warned that the country's bond yields must not rise much higher (details here)

3) profit-taking ahead of next week's US jobs data (the non-farm payroll), which will give "clarity and direction" to the markets.

She also explained that there's been volatility in the foreign exchange markets today, ahead of the European Central Bank's meeting next week. Will it impose negative interest rates on bank deposits, as the OECD advised today?

As Kelly put it:

There's a lack of real certainty over what's going on with central bank policy makers.

The Dow Jones index is expected to fall around 100 points, or 0.7%, when it opens in two hours time. The futures market is also indicating that Japan's Nikkei will fall up to 3% tomorrow morning….

And here's the biggest fallers on the FTSE this lunchtime:

Biggest fallers on the FTSE 100, May 29, lunchtime
Photograph: Thomson Reuters

11.50am BST

Gurria: Eurozone periphery will get better….

Back to the OECD's economic forecasts, and secretary general Angel Gurria has offered hope that the pain in the eurozone's periphery will end.

Speaking to reporters in Paris, Gurria argued that the economic measures being implemented in Europe's weaker countries will yield results.

He told reporters that:

In the periphery in particular, which was hardest hit by the crisis, that is where the reforms are taking place at the faster pace and where things eventually are, I believe, going to be looking better faster once we go through the acute stage of the crisis.

Gurria was speaking after the OECD had urged the ECB to take more unconventional methods to end the eurozone recession (see 10.56am).

OECD Secretary General Angel Gurria (left) talks as Norway Prime Minister Jens Stoltenberg (C) and OECD Chief Economist Pier Carlo Padoan listen during the presentation of the Economic Outlook during the OECD Week at the OECD headquarters in Paris on May 29, 2013.
OECD Secretary General Angel Gurria (left) presenting the Economic Outlook in Paris. Photograph: ERIC PIERMONT/AFP/Getty Images

11.27am BST

UK retail sales gloom

Retail sales in the UK have fallen at their fastest rate in over a year.

The CBI’s latest Distributive Trades Survey, released a few moments ago, showed that 33% of firms reported a fall in sales this month, while just 23% said sales were up.

That's the weakest year-on-year performance since January 2012, the CBI said.

Sales of most items, including clothing and footware, fell, while grocery spending was flat.

The survey also found that retailers are cutting back on their own spending, with investment intentions now the weakest since the start of last year.

Barry Williams, Asda's chief merchandising office for food, warned that consumers are being squeezed:

Retail sales growth has weakened since the start of the year as households continue to feel the pinch, with wages failing to keep pace with the cost of living.

Analysts warned that the data shows the UK economy remains weak.

Jeremy Cook, chief economist at the foreign exchange company, World First, said:

Unemployment has remained high, but the disparity between wages and prices is hurting those who still have a job as well.

Energy and food prices have stayed high throughout the spring and unless they fall, or wages start to recover, the High Street will remain a tough place to be this summer…

Updated at 11.40am BST

10.56am BST

OECD: ECB must consider QE and negatives rates

The big news from the OECD's new economic outlook (see 10.12am onwards) is that it has called on the European Central Bank to take more dramatic measures such as quantitative easing to drag the eurozone out of recession.

The OECD wants the ECB to give serious consideration to launching an electronic money-print operation, in the face of a steadily shrinking economy.

It also recommended cutting the interest rate paid to bank deposits into negative territory, meaning banks would effectively be charged to leave money sitting with the ECB rather than in the real economy.

OECD chief economist Pier Carlo Padoan warned (via Reuters):

Europe is in a dire situation.

We think that the euro zone could consider more aggressive options. We could call it a euro zone-style QE.

The call came as the OECD slashed its forecast for the eurozone to a contraction of 0.6% this year, down from 0.1%. It warned that activity was falling in the face of fiscal consolidation, falling consumer confidence and tight credit conditiions,

It urged government's to allow "automatic stabilisers to operate" — ie, accept that tax receipts will fall during a recession while welfare payments will rise.

"High unemployment and excess capacity will depress inflationary pressures," it added, alongside this graph showing the grim state of the eurozone economy:

Eurozone GDP forecast, May 2013
Photograph: OECD

And here's the key section from the report (page 78 onwards):

The ECB should supplement its recent cut in the refinancing rate by reducing the deposit rate to below zero and issue forward guidance based on inflation prospects.

Further non-standard measures might be needed to improve monetary policy transmission. In particular, additional asset purchases could be considered.

Stronger bank balance sheets would enhance credit expansion and a banking union is critical to reduce negative feedback loops between sovereigns and banks.

Structural reforms in labour and product markets, including completing the Single Market, would boost growth and jobs.

Updated at 11.09am BST

10.25am BST

OECD cuts growth forecasts across the board

Here's a round-up of the OECD's new economic forecasts for 2013:

• It has slashed its growth forecast for the global economy, to 3.1% this year, from 3.4% six months ago.

• It trimmed its US growth forecast to 1.9%, from 2%.

• It cut its China forecast from 8.5% to 7.8% (so slightly higher than the iMF's own prediction this morning – see 7.52am)

• The OECD now expects the eurozone to shrink by 0.6%, not the 0.1% contraction expected

German GDP is tipped to rise by 0.4%, down from 0.6% six months ago

• While France's economy is expected to shrink by 0.3%, not grow by 0.3% as expected last November

10.12am BST

OECD economic outlook released

The Organisation for Economic Cooperation and Development (OECD) has just published its economic outlook, and slashed its growth forecast for the UK this year

The OECB warned that Britain will grow slower than expected, due to the government's spending cuts and struggling consumer and business confidence.

From Paris, our economics correspondent Phillip Inman reports:

In its half-yearly forecasts, the Paris-based Organisation for Economic Co-operation and Development warned that a long and bumpy recovery in the eurozone will continue to hit exports while the government's deficit reduction programme and the paying down of consumer debt will act as a brake on growth.

The OECD said it expected UK national output to grow by 0.8% this year, in line with most economic forecasts, but down from 0.9% six months ago.

It also cuts its growth forecast for 2014 to 1.5%, down from 1.6% six months ago.

Here's Phillip's full story: UK economic growth forecasts cut for 2014 by OECD

Updated at 10.36am BST

9.53am BST

BMW to recruit unemployed Spanish young people

BMW is recruiting a small number of unemployed young Spaniards to work in Germany in a pilot programme to "give something back" to its customer countries.

Here's the full story: BMW to recruit unemployed Spanish young people to 'give something back'

And here's more details:

Twenty-five workers aged 18 to 25 will be trained for a year at the German carmaker's headquarters in Munich, the BMW personnel chief, Milagros Caina-Andree, told Frankfurter Allgemeine Zeitung on Wednesday.

"They should be immersed in German culture, possibly live with a BMW host family and work in development, sales, marketing or another area. After that, these young people can go back home or stay here," she said

Yesterday, French president Francois Hollande argued that one solution to Europe's youth jobless crisis was to make it easier for appentices, as well as students, to study overseas. BMW's small pilot scheme could be the start of something bigger….

9.44am BST

Eurozone loans contract again

Loans to Eurozone companies fell again in April for the 12th month in a row, as the region's private sector found it hard to invest and some banks struggled to lend.

The European Central Bank reported that loans to the private firms fell by 0.9% year-on-year last month, a drop of €18bn. But M3 money supply – which measures the amount of cash in the economy – was up by 3.2%.

Howard Archer, economist at IHS Global insight, said the data was disappointing, and "clearly reflected an ongoing combination of limited supply and muted demand."

And here's some early reaction of Twitter, from the BBC's Gavin Hewitt and Societe Generale's currency expert, Kit Juckes.

9.34am BST

And here's a graph showing how German unemployment has outperformed the eurozone average since the crisis struck (following today's data

German unemployment vs eurozone average
Via Chris Williamson of Markit.

Updated at 9.35am BST

9.28am BST

Here's a full story about the IMF cutting its growth forecasts for China: IMF lowers China growth forecast and urges reforms.

Updated at 9.28am BST

9.25am BST

Here's Carsten Brzeski of ING's take on this morning's German jobless data (see 9.12am)

Despite the stable unemployment rate, it remains noteworthy that the non-seasonally adjusted drop was the weakest May performance since 2005. To some, this is a clear warning that the debt crisis is finally taking its toll on the German labour market. In our view, however, the weak spring revival of the labour market can also be explained by the relatively high number of public holidays in May and the still cold weather. Therefore, it is far too premature to start singing Swan Songs on the labour market.

Brzeski argues that the German labour market remains "the showcase example" for successful labour market reforms – topical, with the EC's latest budget recommendations due later today.

 Even the current success has also received a helping hand from strong export growth and the first wave of ageing, the reforms of the mid-2000s are still paying off. Up to the early 2000s, the German economy required growth of at least 1.5% to create new jobs. In recent years, GDP growth rates of less than 1% were sufficient for job creation. This bodes well for the near-term outlook, indicating that despite an expected GDP growth rate of only roughly 0.5% this year, the labour market should remain stable. At the Eurozone level, it is obvious that the success of its own structural reforms will further encourage the German government to continue hammering on structural reforms.

Updated at 9.25am BST

9.12am BST

German jobless data

The German government has declared that its labour market remains in good shape, after its latest unemployment data was released.

The number of people out of work fell below the 3 million mark for the first time since December, dropping by more than 83,000. This pulled the jobless rate down to 6.8%, from 7.1% last month.

However, on a seasonally-adjusted basis the number of people out of work rose by 21,000, much more than the 4,000 increase expected. That left the seasonally-adjusted jobless rate at 6.9%, unchanged from April.

Labour office chairman Frank-Juergen Weise commented:

Overall the German labour market is still in a good condition and is putting in a solid performance in a tough economic environment.

8.57am BST

Upbeat economic news from Sweden. It just beat analyst forecasts with growth of 0.6% in the first three months of 2013. That's twice as fast as economists had expected – in a quarter when the eurozone fell deeper into recession.

8.49am BST

The agenda

The other main event in the diary today comes from the OECD, which will publish its latest economic outlook in Paris this morning. That, and the EC's latest budget review (8.20am), means Europe's struggling economy could be under particular scrutiny.

OECD economic outlook released. 10am BST

EC announces annual budget review and makes policy recommendations: from 1pm BST

UK retail sales: 11am BST

Portuguese parliament debates latest budget: afternoon

Updated at 9.47am BST

8.29am BST

The Bank of Thailand has just become the latest central bank to ease monetary policy, by cutting interest rates by a quarter-point to 2.5%.

8.26am BST

Italy planning to be prudent

Around €8bn of public money will be 'unlocked' if Italy is freed from the EC's excessive deficit procedure today (as appears likely).

That money had been earmarked for deficit reduction, but could now be spent by Enrico Letta's government. The Italian PM, though, has already tried to dampen hopes of a spending splurge, saying resources will not be freed immediately (more details here).

8.20am BST

EC to ease austerity focus

The European Commission is expected to formally shift its focus away from austerity and in favour of growth later today, when it publishes its annual review of the national budgets of all 27 EU members.

The EC is expected to give three of its largest countries, France, Spain and the Netherlands, more time to bring their deficits down to the 3% target.

They'll be encouraged to reshape their economies, open up their labour markets, and implement structural reforms, but the underlying message will be that the pace of fiscal consolidation can be slowed.

As one official put it to Reuters:

The main message will be that the emphasis is shifting to structural reforms from austerity.

That is likely to mean two-year extensions for both Spain and France, giving them until 2015 to cut their annual borrowings below 3% of national output. The Netherlands is expected to get 12-months grace.

The EC will probably argue that the move is justified because the threat of a eurozone break-up has faded away. But opponents of full-blooded austerity could also take heart that the pendulum has swung, finally, in their favour.

The EC won't abandon its push for reform, either. Instead, it is likely to criticise a number of governments for failing to implement reforms quickly enough. Francois Hollande's government could be singled out.

As the FT puts it:

Brussels is expected to criticise several governments for their slow pace of reform and will demand immediate action by several it believes are at risk of prolonged economic stagnation. These include France, where senior officials in Brussels and Berlin believe time is running out for sufficient labour and economic reforms.

Italy, though, is likely to be freed from the EC's excessive deficit procedure, having cut its annual borrowing below 3% of GDP.

Updated at 8.21am BST

7.52am BST

IMF cuts Chinese growth forecast

Women shop for discounted fashion at a retail center, in Beijing, China, 29 May 2013. As China's leaders attempt to rebalance the economy, raising individual consumption is seen as one of the main goals.
A retail center, in Beijing today, where China’s leaders have been advised to boost individual consumption. Photograph: ADRIAN BRADSHAW/EPA

Good morning, and welcome to our rolling coverage of events across the eurozone and the wider global economy.

Overnight, the International Monetary Fund has lowered its growth forecast for China, in the latest signal that the world's second-largest economy is slowing.

The IMF urged the Beijing government to take "decisive" action to stimulate domestic consumption and to control the recent expansion of credit, as it trimmed its growth forecast for 2013 and 2014 to 7.75%, from 8% this year and 8.2% next year.

David Lipton, the first managing director of the IMF, warned that China's ability to absorb troubles in the global economy was shrinking.

Lipton said;

While China still has significant policy space and financial capacity to maintain stability even in the face of adverse shocks, the margins of safety are narrowing and a decisive impetus to reforms is needed to contain vulnerabilities and move the economy to a more sustainable growth path.

The IMF fears that the growth of credit in China is creating a stock of bad debts that will hamper future growth. As Lipton put it:

China’s economy faces important challenges. In particular, the rapid growth in total social financing raises concern about the quality of investment and its impact on repayment capacity.

Bloomberg has more details from Beijing: China Growth Outlook Cut by IMF as ‘Decisive’ Reforms Urged.

China needs a “decisive push for rebalancing toward higher household incomes and consumption,” Lipton said. The nation should allow more competition in industries “currently considered strategic” and increase dividends from state-owned enterprises to “improve financial discipline and provide additional fiscal revenue,” Lipton said.

The IMF's annual report comes a week after China's factory output took a surprise drop. Today's growth forecasts brings the IMF roughly into line with City analysts, but will add to concerns that the Chinese economy is losing its zip.

I'll pull together more reaction to the report this morning.

Also coming up today… the EC is to announce its annual review of compliance with its budget rules. It is expected to give several countries more time to hit their deficit targets. More to follow….

Updated at 8.11am BST

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EU is the new ‘Sick Man of Europe’, claims Pew Research Centre. French lose faith in integration and Hollande. EU ministers split over bank bail-ins. German ZEW investor sentiment index barely improves with a reading of 36.4 from 36.3…

 


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6.52pm BST

Closing summary

With the Ecofin meeting over, that's all from me today. Here's a closing summary.

• EU finance ministers have agreed that upcoming new rules on how to resolve a failed bank should include guaranteed protection for savers with under €100,000.

The decision, taken at today's Ecofin meeting, is meant to reassure European bank customers that their money is safe, following the Cypriot bailout farrago, under the upcoming bank recovery and resolution directive that will outline how failing banks are handled.

See 6.09pm for the story, and 5.03pm onwards for highlights of tonight's press conference.

But there was only limited progress on other issues in Brussels. Ministers failed to reach a full agreement on how other creditors would be 'bailed in' under the new bank restructuring rules (see 12.25pm onwards for the key quotes) and the WSJ's early take is here.

 • Hopes that ministers would agree a new directive to clamp down on tax evasion were also dashed. Austria and Luxembourg refused to sign up for the directive, to the clear annoyance of the EU tax commissioner (see 5.16pm).

Instead, the EC has agreed a mandate for fresh negotiations with the likes of Monaco and San Marino (see 4.50pm for details)

The big news of the morning was a new survey which found a sharp drop in support for the European Union across Europe. Pew said rising unhappiness and anger over the debt crisis was turning the EU into 'the sick man of Europe' (see 8.17am for full details)

Pew findings
One of Pew’s findings.

Ian Traynor, our Europe editor, said the survey showed the relationship between Germany and France is deteriorating (see 11.30am)

Greece's credit rating was raised by Fitch. It which said the chances of the country leaving the eurozone had receded (see 6.02pm)

And the latest ZEW survey of economic sentiment in Germany was a disappointment. (see 10.23am onwards).

Thanks, as ever, for reading and for the many excellent comments. See you in the morning… Goodnight!

Austrian Federal Finance Minister Maria Fekter (L) takes part in a joint press conference alongside Luxembourg Finance Minister Luc Frieden,  following an Economic and Fiancial Affairs meeting on May 14, 2013, at the EU Headquarters in Brussels.
Austrian finance minister Maria Fekter and Luxembourg’s Luc Frieden. Photograph: GEORGES GOBET/AFP/Getty Images

Updated at 7.04pm BST

6.29pm BST

It was another bullish day in Europe's stock markets, with the FTSE 100 finishing up almost 1% at its highest level since October 2007 up 54 points at 6686.

As my colleague Nick Fletcher points out, it's the ninth daily rise in a row, and the best run since July 2009.

A takeover bid for Severn Trent (up 13% today) helped push the Footsie higher. Another factor was the sight of a bullish hedge fund manager, David Tepper, on CNBC today:

David Madden, market analyst at IG, explains:

David Tepper may not be the sole reason for this rally, but investors seem to have responded positively to the sight of a major hedge-fund manager making positive noises about the US economy

6.09pm BST

Here's Reuters take on the EU's decision to protect small savers, but the lack of concrete agreement on other issues (as we've covered through the day).

Depositors keeping less than 100,000 euros in a bank that is being closed down will get all their money back, European Union finance ministers agreed on Tuesday, and most supported the idea that bigger depositors would get privileged status.

"There was general agreement that deposits below 100,000 euros in any resolution will be sacrosanct," Irish Finance Minister Michael Noonan, who chaired the talks, told a news conference.

The ministers were discussing rules of closing down banks and the hierarchy of losses imposed on the banks' owners and creditors in such an event.

EU Internal Market Commissioner Michel Barnier said that most ministers supported the view that large depositors above 100,000 euros should enjoy a privileged status, and be the last to lose any funds, after senior bondholders.

The ministers are to conclude the discussions in June.

6.02pm BST

Greece upgraded – here’s why

Back to Fitch's decision this evening to upgrade Greece's credit rating to B- / stable.

The agency said it took the move after concluding that Athens had made real progress in addressing its debt crisis:

The Greek economy is rebalancing: clear progress has been made towards eliminating twin fiscal and current account deficits and 'internal devaluation' has at last begun to take hold.

The price has been high in terms of lost output and rising unemployment and the capacity for recovery is still in doubt.

Nonetheless, sovereign debt relief and an easing of fiscal targets have lifted Central Bank measures of economic sentiment to a three-year high and the risk of eurozone exit has receded.

The full statement is online here.

5.44pm BST

Ecofin press conference ends, May 14 2013
That’s all, folks

End of press conference…

5.37pm BST

Michael Noonan was also forced to defend Ireland's tax system, including its low corporation tax rates.

It's not 'aggressive' he insists, merely transparent*. Noonan adds that corporation tax levels are being lowered in other countries too, such as Britain.

* – doesn't that mean we can see right through them, as Pratchett once put it?…

Updated at 5.37pm BST

5.33pm BST

So, small depositors are safe, but we're not hearing a lot about those with more than €100,000 in a bank that fails.

That's because ministers couldn't reached a deal about creditor protection limits. And this could cause jitters in the European banking sector, if corporations, organisations and wealthier individuals fear that they are near the front of the line when the bail-in bucket comes round….

Updated at 5.33pm BST

5.28pm BST

Noonan: on the Cyprus mistakes…

The next question points out that the original Cyprus bailout managed to impose losses on small savers by declaring a tax, rather than a bail-in.

Why can't it happen again?

Noonan replies that the Cyprus situation was unusual, and that everyone now realises that the levy was a very bad idea.

The public reaction to what happened in Cyprus has nailed it down "harder than ever" that deposits under €100,000 are sacrosanct, he adds.

Updated at 5.45pm BST

5.26pm BST

Small savers definitely protected

So that's a firm commitment from the EU ministers that small savers, with up to €100,000 in the bank, will be absolutely protected in the event of a bank failure.

5.23pm BST

Question Time

The Q&A session begins, and the press pack are chasing Noonan over his comments that 'almost everyone' in the Ecofin meeting believes guarenteeing savings below €100,000 are sacrosant.

Noonan explains that some finance ministers pointed out that their juristictions have a limit below €100,000 [he doesn't say who].

But the broad agreement, he insists, is that such small savers' protection is sacrosant.

5.21pm BST

Michel Barnier explains the details of today's discussions on banking resolution mechanisms:

Updated at 5.21pm BST

5.19pm BST

Just in: Fitch has upgraded Greece's credit rating to 'B-', with a stable outlook.

5.16pm BST

Tax commissioner: high expections weren’t met today

EU tax commissioner Algirdas Semeta is being politely scathing about Austria and Luxembourg after they blocked the Ecofin from adopting the new tax evasion directive today.

Semeta says that expectations were high going into the meeting:

I cannot say that high expectations were fully met…..

and he added:

It saw with great disappointment that I saw a deal on the new savings directive blocked today…..

Semeta does hail the new mangate on tax deals as a step forwards, but hopes that EU leaders can do better when they meet nextr week.

In the battle of tax evasion, what we achieved today was undoubedly a step forward.

Let's hope that what our leaders agree next week is more like a giant leap.

5.07pm BST

Noonan: no tax evasion deal today

Noonan confirms that EU ministers couldn't reach agreement on the new tax evasion directive, but points to the agreement on a new mandate on negotiations with other countries (see 4.50pm)

Updated at 5.07pm BST

5.05pm BST

Curious… Noonan tells the press conference that "almost everyone" agreed that deposits under €100k should be protected under the new bank resolution mechanisms.

Who doesn't?…

He adds that there was general agreement for a broad scope for a bail-in procedure with "a limited number of exclusions".

(However, as we covered at lunchtime, no agreement on the depositor preference details)

5.03pm BST

Ecofin press conference begins

And we're off! Michael Noonan begins by saying that Ecofin made 'concrete progress' on three issues — bank resolution mechanisms, the EU budget, and tax evasion.

(remember, it's being streamed here)

4.50pm BST

European Council: new mandate for tax evasion talks

The European Council has issued a statement, confirming that EU ministers agreed to give the commission a mandate to negotiate amendments to the EU's agreements with Switzerland, Liechtenstein, Monaco, Andorra and San Marino on the taxation of savings income (tax evasion, basically)

It's online here: Savings taxation: Council go-ahead to negotiate with Switzerland, Liechtenstein, Monaco, Andorra and San Marino.

Here's a flavour:

The decision represents an important step in the EU's efforts to clamp down on tax evasion and tax fraud.

The aim is to ensure that the five countries continue to apply measures that are equivalent to the EU's directive on the taxation of savings income, which is being updated. The Commission will negotiate on the basis of a draft directive amending the savings directive (2003/48/EC), aimed at improving its effectiveness and closing certain loopholes so as to prevent its circumvention.

Updated at 4.50pm BST

4.44pm BST

You can follow the Ecofin press conference live, here. (not actually underway yet…)

4.42pm BST

The Ecofin press conference is about to start. It's 20 minutes earlier than expected, too. A rarity for the EU….

4.34pm BST

WSJ: Ministers divided over bank reforms

The Wall Street Journal has summed up the lack of progress over bank resolution mechanisms today (as covered in the blog from 12.11pm onwards)

EU Ministers Split on Protection for Depositors (paywall).

Here's a flavour:

German Finance Minister Wolfgang Schäuble, along with his Dutch and Danish counterparts, backed a tough approach in which uninsured depositors would contribute on the same level as senior bondholders when problems arose.

While that would help limit the losses borne by other classes of creditors, some worry it could jeopardize financial stability and scare off savers.

At the other end of the spectrum, France's Finance Minister Pierre Moscovici said uninsured depositors should be excluded from sharing losses as a general rule, with a resolution authority able to question that in individual cases.

Other ministers backed a mixed approach under which uninsured depositors would be tapped, but only after all other creditors had been bailed in. Such "depositor preference" is supported by the European Commission and European Central Bank, and is already status quo in countries such as the U.S.

Updated at 4.35pm BST

4.28pm BST

Back in Brussels the finance ministers of Luxembourg and Austria have been holding their own press conference, to explain why they didn't support the EU directive on tax evasion.

Luc Frieden defended the countries' line, saying they are committed to the issue:

Here's some other highlights:

Oh, and it's still being streamed here

Updated at 4.37pm BST

4.20pm BST

RadioBubble, the Greek citizens media group, has written up yesterday's marches in support of Greek teachers who are being 'mobilised' by Greek authorities to prevent them holding strike action.

Update on the teachers' strike and civil mobilization – 14 May 2013

It reports that Greek police have been distributing mobilization orders widely today, which are designed to stop teachers holding industrial action at the start of the Greek exam season.

There's also a photo of a mobilization order which shows that the measure is "open-ended":

In other words, the teachers' right to strike has been revoked until further notice.

4.13pm BST

Word from Brussels that the Eurogroup meeting is almost over…

Updated at 4.15pm BST

4.11pm BST

Britain's permanent representative to the EU confirms that EU ministers failed to reach an agreement on the Savings tax directive, but did agree a mandate for reaching agreemetn with third-parties:

4.07pm BST

Head-up: eurozone GDP data for the first three months of 2013 will be released tomorrow morning. Economists expect another quarter of contraction, extending the eurozone recession by another three months.

But the decline is likely to be slower than in the last three months of 2012.

My colleague Jo Moulds has the details: Eurozone recession set to ease but recovery elusive

3.14pm BST

Disappointment as ministers fail to agree tax evasion directive

Algirdas Semeta, Commissioner for Taxation, says he is disappointed that finance ministers didn't reach agreement on the tax evasion directive today (thanks to obstruction from certain members).

The issue will be considered at an EU summit next week (on May 22nd), he adds.

Wolfgang Schauble at Ecofin, May 14 2013
Wolfgang Schäuble (centre) and Maria Fekter (right).

But Germany's Wolfgang Schäuble is more positive, saying it would be wrong to think there is 'frustration' at the Eurogroup today. He points out that leaders have reached "unanimous agreement" on a mandate for negotiations with Switzerland over tax evasion.

Updated at 3.20pm BST

3.01pm BST

Maria Fekter appears to be effectively blocking the EU's attempt to bring in new rules to clamp down on tax evasion.

She's saying Austria can't sign up to the new Savings Directive until Europe has hammered out deals with other parts of the world for the exchange of information.

However, those countries (such as Switzerland) are resisting those agreements until Europe has agreed its own tougher rules inhouse…. by approving the Directive.

2.56pm BST

2.56pm BST

Fekter adds that Austria sees the Directive "a little more positively" than in the past….

2.52pm BST

Austria: We won’t back new Savings Directive today

The question today is whether finance ministers back an amended EU Savings Directive, or not.

Maria Fekter, Austria's finance minister, says that the existing directive has never worked because its scope is too limited.

So she is minded to back the new directive, but "not today" as there is insufficient harmonisation with the rest of the world.

I accept the text, but not adopted today, because we then have the situation that we in Europe are going further [than other countries].

2.47pm BST

Key event

EU finance ministers are discussing the issue of tax evasion, and whether to share more information on savings accounts (a big issue for George Osborne today – see 11.18am).

2.38pm BST

Ecofin meeting, May 14th 2013
Today’s Ecofin meeting

The Ecofin meeting is continuing, and being streamed here. No major dramas yet…..

2.37pm BST

Back in Brussels, finance ministers have voted through an amended 2013 budget – despite George Osborne asking for extra savings to be made.

That's via Jürgen Baetz, who is covering the Ecofin meeting for AP.

2.18pm BST

Portugal rules out gold sale

Portugal has no intention selling its gold reserves to fund any future aid package, the head of the country's central bank has pledged.

Bank of Portugal Governor Carlos Costa insisted today that Portugal was not falling off track with its bailout programme. Asked about the possibility of a gold sale in future, Costa replied:

It is not applicable in Portugal.

Portugal holds 382.5 tonnes of gold, according to recent estimates. That's worth around bn (€14.6bn) at current prices — around 25 times more than Cyprus's reserves.

Costa also ruled out revising his economic forecasts, even though the bank expects a 1.1% increase in GDP in 2014, while the Lisbon government only expects 0.6% growth.

1.49pm BST

British Land to quit continental Europe

The economic crisis which is hitting faith in the EU (see opening post onwards) has also thumped British Land.

The company announced today that the value of its European portfolio has fallen by 17%, mainly due to the biting recession in southern Europe.

British Land now plans to dispose of its continental businesses.

My colleague Nick Fletcher has the full story here: British Land plans European exit as economic crisis hits property values

Updated at 1.49pm BST

1.25pm BST

City analyst Dan Davies jokes that Eurozone finance minister haven't really grasped the point that "depositor preference" means the order at which creditors are bailed into a rescue:

1.09pm BST

Ecofin: early reaction

The lack of clear agreement between finance ministers has alarmed author Lawrence McDonald, who points out that Europe has had years to reach a deal:

The Cyprus bailout has put the issue of bank failures in the forefront of many people's minds, especially after its government briefly planned to tax all savers.

Eurogroup ministers now all insist that 'insured depositors' are safe. But those guarantees are only as strong as the government that stands behind them, as Sony Kapoor of the ReDefine thinktank points out:

1.01pm BST

Barnier: Not convinced by French plan

European commissioner Michel Barnier isn't convinced by Pierre Moscovici's suggestion that Europe should not lay out a clear "depositor preference"

Moscovici is pushing for 'flexibility' over who picks up the bill, rather than a fixed order for which creditors suffer losses when a bank is in trouble.

Barnier didn't mince his words, either, telling the room (in French) that:

I have some difficulty, to be frank with you, with Pierre's proposal.

(quote via the FT's Peter Spiegel)

Ireland's Michael Noonan, who is chairing the meeting, summed up the meeting by claiming that finance ministers were homing in on an agreement.

But the watching journalists aren't sure that's quite right:

(our 12.11pm post summed up the differing views too)

Updated at 1.10pm BST

12.25pm BST

Osborne: calls for ‘flexibility with restraint’

George Osborne at Ecofin, May 14th 2013
George Osborne today.

Now George Osborne speaks, saying that "flexibility with restraint" is the key to succesful, workable, rules for failing European banks.

The UK chancellor says it is essential that small savers (with up to €100,000) are completely protected under rules for handling a bank that needs to be recapitalised, or wound down.

Osborne points out that the decision of whether to put senior bondholders ahead of uninsured depositors, or behind them, is tricky. A "clear creditor hierarchy" can be evaded, he explains.

Here's Osborne's thinking:

If bondholders face the first hit, then corporations could get round the rules by moving money from bonds into bank deposits. But on the other hand, protecting all deposits could be controversial in a country such as Cyprus where many were held by businessmen from outside the eurozone. Should they really be protected ahead of European banks?

Osborne also backed an idea mentioned by Dutch finance minister Jeroen DIjsselbloem, of a 'bailinable buffer' in case banks hit trouble. The UK, though, can't afford to set its own fund up, though, given the size of its banking sector.

And before anyone suggested a new levy, Osborne added that Britain has "the highest bank taxes of any country around this table.

Updated at 12.29pm BST

12.11pm BST

EU ministers split over bank resolution powers

EU finance ministers are still at odds over how to resolve failing banks.

The public session (streamed live here) has heard a range of views over bank resolution mechanisms. The debate revolves around how creditors are 'bailed in' to fund future rescue deals, and in what order of priority.

Jörg Asmussen of the ECB said was "essential" that ministers reach agreement quickly, so that bank resolution can be introduced in 2014.

we need to establish a clear pecking order for the bail-in.

Sweden's Anders Borg warned that introducing rules that would 'bail-in' large creditors could be destabilising for EU countries who are not in the euro. They cannot rely on the ECB to step in, he warned.

Sweden's finance minister, Anders Borg
Sweden’s finance minister, Anders Borg, today.

Spain's Luis De Guindos was also concerned about the implication of exposing depositors with more than €100,000 in the bank to losses. That could easily prompt a bank run, even among smaller savers, he warned:

France's Pierre Moscovici called for flexibility, saying a 'discretionally approach' is best when deciding who should take the hit.

But Koen Geens of Belgium argued in favour of clear rules:

As did Germany and Denmark:

Updated at 2.14pm BST

11.51am BST

Another day, another interest rate cut. Serbia has slashed borrowing costs by 50 basis points, from 11.75% to 11.25%. Analysts had only expected a quarter-point cut.

It's the first cut in a year, and follows a stream of similar rate reductions in the past fortnight (eg the ECB, Australia, Poland, Israel…)

11.30am BST

Ian Traynor: Public mood at odds with Europe’s crisis response

Our Europe editor, Ian Traynor, has dubbed the Pew's report into Europe "a catalogue of unremitting gloom (unless you're a German)"

The report (see 8.17am onwards for details) is the latest sign that the Franco-German alliance at the heart of Europe is wobbling, he says.

Ian writes:

It is striking how the policy responses of EU leaders to the currency crisis are at such odds with public opinion, as centrifugal political action clashes with centripetal national moods.

The crisis management of the past three years has essentially seen Berlin, Brussels, and others resort to technocratic fixes in an incremental process of pooling economic and fiscal policy powers in the eurozone.

Outside of Germany, however, public support for surrendering such powers from the national level to Brussels, as is happening, is declining rapidly, generating an ever widening "democratic deficit" in the EU that the leaders regularly bemoan but have done nothing to address.

Here's Ian's full analysis: Eurozone crisis sees Franco-German axis crumbling

11.18am BST

George Osborne will push fellow finance ministers at today's Ecofin to help tackle tax evasion by signing up for a new EU directive on savings.

Our political editor, Patrick Wintour, explains that the directive will mean countries share more tax information, making it harder to conceal taxable assets.

Osborne, in advance of a heads of EU government summit later this month devoted to tax transparency, will urge his fellow EU ministers to sign off the directive, which has been delayed by almost a decade.

 Writing to other EU finance ministers ahead of Tuesday's meeting, he says: "Unless Europe can show it can agree on this existing proposal, our commitment to a new, stronger standard will not be credible. It is a test of our seriousness, and the world is watching us."

Here's the full story: George Osborne urges EU finance ministers to sign tax directive

Updated at 11.19am BST

11.07am BST

The public section of the Ecofin meeting is being streamed here

Updated at 11.07am BST

11.03am BST

Photos: EU finance ministers meet in Brussels

Over in Brussels, finance ministers from across the EU have gathered for today's Ecofin event. On the agenda, the push towards banking union and the details of the 2013 EU budget.

Here's a few photos of the pre-meeting banter:

French minister of  Economy, Finances and Foreign Trade  Pierre Moscovici and British Chancellor of the Exchequer  George Osborne  (LtR) talk prior to an Economic and Financial Affairs meeting on May 14, 2013 at the EU Headquarters in Brussels
French finance minister Pierre Moscovici chatting to British chancellor George Osborne. Photograph: GEORGES GOBET/AFP/Getty Images
French Finance Minister Pierre Moscovici, center, talks with Swedish Finance Minister Anders Borg, left, and British Chancellor of the Exchequer George Osborne, during the EU finance ministers meeting, at the European Council building in Brussels, Tuesday, May 14, 2013.
 Swedish Finance Minister Anders Borg, left, with Pierre Moscovici and George Osborne. Photograph: Yves Logghe/AP
Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem (C) at the start of a finance ministers meeting at the EU headquarters in Brussels, Belgium, 14 May 2013.
Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem at the start of a finance ministers meeting. Photograph: OLIVIER HOSLET/EPA
German Finance Minister Wolfgang Schaeuble and Finnish Finance Minister Jutta Urpilainen talk in front of (from L, background) French minister of  Economy, Finances and Foreign Trade Pierre Moscovici and European Investment Bank President Werner Hoyer prior to an Economic and Financial Affairs meeting on May 14, 2013 at the EU Headquarters in Brussels.
German Finance Minister Wolfgang Schaeuble and Finnish Finance Minister Jutta Urpilainen (both foreground). Photograph: GEORGES GOBET/AFP/Getty Images

The agenda for the meeting is online here:

ECONOMIC and FINANCIAL AFFAIRS Council meeting, Brussels, 14 May 2013

In summary (all times approximate)

• Banking Recovery and Resolution – from 10am BST/11am CEST

• Any other business – from noon BST/1pm CEST

• Draft Amending Budget No 2 to the General Budget 2013 – from 1.30pm BST/2.30pm CEST

• Savings taxation (relating to how savings income is taxed, and potential tax evasion) – from 2.15pm BST/3.15pm CEST

• Press conference: 5pm BST/6pm CEST

Updated at 2.44pm BST

10.46am BST

ZEW: What the analysts say

The news that German investor confidence has barely improved (see 10.23am) has disappointed financial analysts.

They say it shows that the eurozone recession is grinding on, while Germany itself appears to be stabilising.

Here's a round-up of reaction, from the Reuters terminal:

Lothar Hessler of HSBC Trinkaus

We had expected a better result after industrial orders and output and exports all rose recently. Also the European Central Bank cut rates.

The data nevertheless point to a stabilisation of the German economy. It is growing again. But the euro zone is still in a recessionary phase. That in turn dampens the upswing here.

David Brown of New View Economics

Germany and the troubled Eurozone economies are poles apart in terms of where they are in the recovery cycle and Eurozone policymakers should not confuse them.

While Germany continues to pull away, the rest of the Eurozone still needs a lot more stimulus efforts from the ECB and government fiscal policies before the Euro area is off the recession rocks.

Thilo Heidrich of Postbank

Basically, the ZEW index remained below expectations. Above all, a strong stock exchange performance and good industrial data from Germany had led people to expect something better.

On the other hand, the data points to a continued expectation among participants of economic stabilisation or a slight recovery."

And Mike van Dulken of Accendo Markets points out that ZEW took the shine of this morning's decent industrial production data (see 10.12am)

Updated at 10.47am BST

10.23am BST

ZEW survey of German sentiment shows little improvement

From Pew to ZEW…and the closely watched survey of economic sentiment has shown that German analysts and investors are still alarmed by the troubles in the eurozone.

The ZEW index inched higher to 36.4, from 36.3, dashing forecasts of a larger rise on the back of recent decent data.

A separate measure of current conditions dropped to 8.9 this month from 9.2 in April – suggesting the German economy is struggling to bounce back from its contraction at the end of 2012.

Clemens Fuest, president of the ZEW Institute, commented:

Despite mostly positive economic data for the German economy, the ZEW indicator remains at the level of the previous month.

This may be due to the still poor economic situation in the euro zone, that is also reflected by the recent ECB interest rate cut

Reaction to follow….

Updated at 10.23am BST

10.12am BST

Eurozone industrial output rose by 1% month-on-month in March, according to Eurostat.

That's twice as bit a rise as analysts had forecast, and an encouraging sign for Europe's manufacturing base (although the increase was mainly due to strong energy demand).

February's reading was revised down from 0.4% to 0.3%, so the sector is still 1.7% smaller than a year ago.

9.52am BST

Italian govenment debt hits record high

Italy's government debt has risen to a new alltime high of €2.035 trillion in March – the Bank of Italy reported.

9.32am BST

Pew's findings also chime with the latest Guardian/ICM poll, released this morning, which showed a surge in support for the eurosceptic Ukip party.

The poll found that the number of voters backing Ukip has doubled to 18%, while the three main parties all lost four percentage points.

Ths rising anti-European sentiment, both in the country and on its own backbenches, has forced the UK government to announce plans for a new draft bill introducing an in-out EU referendum.

Here's the full story: David Cameron offers olive branch on EU referendum as Ukip soars

9.18am BST

The agenda

Quick bit of housekeeping. Here's what's coming up in the eurozone

Ecofin finance ministers meeting in Brussels begins: 10am BST/11am CEST

Ecofin press conference: 5pm BST/6pm CEST (estimated!)

Spanish debt auction: morning

German ZEW survey of economic sentiment: 10am BST

ECB's Jörg Asmussen speaking in Berlin: 5pm BST.

(via RanSquawk)

9.08am BST

The 'national stereotypes' section of Pew's report gives an interesting insight into European attitudes:

Asked which EU member was 'most compassionate', people in each country surveyed picked themselves.

The French identified themselves as both the 'most arrogant' and 'least arrogant', while everyone decided that Germany was the most trustworthy, apart from the Greeks who felt they deserved the crown:

European stereotypes
Photograph: Pew Research Centre

(that's from the bottom of this page)

Updated at 9.08am BST

8.56am BST

Pew was particularly concerned about France, describing the eurozone's second-largest economy as "Dyspeptic", and drifting away from Germany.

No European country is becoming more dispirited and disillusioned faster than France. In just the past year, the public mood has soured dramatically across the board.

Economic woes are the main cause, with 91% of the French saying their economy is doing badly – up from 81% a year ago.

And two-thirds of those surveyed reckon president Francois Hollande is doing a poor job handling the challenges posed by the economic crisis. That's 24 percentage points worse that his predecessor, Nicolas Sarkozy.

Worryingly for Brussels, 77% said believed European economic integration has made things worse for France (+14), and 58% now have a bad impression of the European Union as an institution (+18).

France's economic mood, 2013
Photograph: Pew Research Centre

Updated at 8.56am BST

8.17am BST

Pew: European Union is The New Sick Man of Europe

Pew findings
Top-line findings from the Pew Institute’s report.

Good morning, and welcome to our rolling coverage of the eurozone financial crisis, and other key events in the global economy.

Public support for the European project has fallen and distrust between countries is growing, according to a new survey released overnight that shows the damage caused by the region's debt crisis over the last few years.

The well-respected Washington-based Pew Research Center warned that support for the EU has slid over the last 12 months, from 60% in 2012 to just 45% this year.

In a report titled "The New Sick Man of Europe: the European Union", Pew showed that backing for European integration tumbling in France.

The people of Europe are increasingly gloomy about economic conditions, disillusioned about their leaders, and losing faith in the whole idea of European Unity, the poll found.

Decline in support for EU
Photograph: Pew Research Center

As Pew put it:

The effort over the past half century to create a more united Europe is now the principal casualty of the euro crisis. The European project now stands in disrepute across much of Europe….

The prolonged economic crisis has created centrifugal forces that are pulling European public opinion apart, separating the French from the Germans and the Germans from everyone else.

The southern nations of Spain, Italy and Greece are becoming ever more estranged as evidenced by their frustration with Brussels, Berlin and the perceived unfairness of the economic system.

Pew surveyed over 7,600 people in March in eight countries – Germany, France, the UK, Italy, Spain, Poland, Greece and the Czech Republic.

It also found that Angela Merkel remains the most popular leader in Europe, by a wide margin. Not just at home — Merkel won majority approval for her handling of the European economic crisis in five of the eight nations surveyed.

Other leaders, though, are in the doghouse, Pew says:

Compounding their doubts about the Brussels-based European Union, Europeans are losing faith in the capacity of their own national leaders to cope with the economy’s woes. In most countries surveyed, fewer people today than a year ago think their national executive is doing a good job dealing with the euro crisis.

Support for EU leaders
Photograph: Pew Institute

The full report is here.

Pew's report comes as European finance ministers gather in Brussels today to discuss how to implement banking union across the eurozone. Perhaps they'lll find time to chat about these findings in the corridors…

I'll be tracking all the developments through the day, including more highlights of the Pew survey, and reaction to its findings.

Updated at 8.45am BST

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