Graeme Wearden

US Non-farm payrolls reported below forecasts. Downward revisions mean 74,000 fewer new jobs for the months of June and July. Market reaction: gold up, dollar down. Greek recession slowing. UK trade deficit widens – details and reaction…

 


Powered by Guardian.co.ukThis article titled “US labour market misses expectations with 169,000 new jobs in August -as it happened” was written by Graeme Wearden, for theguardian.com on Friday 6th September 2013 15.45 UTC

Key event

Europe’s stock markets have closed for the week. There were decent gains in Spain and Italy (both up 1.2%) and little change in London, where the FTSE finished just 14 points higher at 6547.

And government bond yields remain higher today, pushing down bond yields (see 2.01pm)

US trading continues to be volatile, still driven by Syria-related headlines as well as today’s jobs data. The Dow Jones index is back in positive territory for the day, up 40 points at 14977….

And that’s where I’m going to clock off. Back on Monday for more of the same. Thanks, and goodnight. GW.

Back in Greece, schoolteachers have decided to take the sheen off Greek prime minister Antonis Samaras’ much-anticipated speech on the state of the county’s economy tomorrow (details at 11.18am) by announcing rolling strikes later this month.

Our correspondent in Athens, Helena Smith, reports:

Just as Antonis Samaras is preparing to talk up the Greek economy – in a speech that is expected to emphasise that the debt-stricken nation’s dependence on foreign lenders could “soon” be over – unions are girding for battle. Primary and secondary school teachers have announced five-day rolling strikes beginning September 16. Educators in both sectors voted overwhelmingly to conduct the strikes in a massive display of opposition over government plans to lay off thousands of teachers by the end of the year.

The protests, which will begin with a protest demonstration in Syntagma square tonight, are likely to wreak havoc on the education system and be a major embarrassment for a government desperately trying to keep the social peace by insisting that Greece’s days under international stewardship are now numbered. “If need be we will bring the whole system down,” exclaimed one leading unionist as she demonstrated outside the national economy ministry recently. “After so many years of recession and cuts, these measures are totally barbaric.”

Athens’ former mayor Nikitas Kaklamanis, a member of Samaras’ centre right New Democracy party, has added to the gloom telling radio listeners today that the government’s much-touted “success story” was well and truly over.

“Some time ago I asked the finance minister how many investments above one million euro, either by Greeks or foreigners, had been made in Greece in 2012 and do you know what the answer was? Four!,” he said. “To speak about development and growth when that is the official answer is to make a mockery of the situation. I believe that the success story has well and truly been relocated to the past.”

The National Institute of Economic and Social Research thinktank has predicted that the UK economy grew by a rumbustious 0.9% in the three months to the end of August, or more than 3.6% on an annualised basis.

That follows a string of strong economic data in recent weeks, and is an improvement on last month’s reading — when NIESR estimated that GDP rose by 0.7% in the May-July quarter.

The group also predicted slower growth in the months ahead:

Looking ahead, the rate of growth will likely soften, somewhat, over coming quarters. The external environment in the guise of weak demand from the Euro Area and slowing emerging markets will likely limit the rate of the UK’s economic expansion.

And even after such a good August, Britain’s GDP is still 2.7% below its pre-crisis peak, with this recovery still the slowest on record.

Updated

First it was Germany’s banks (8.07am) now it’s America’s car industry which is feeling the love from the ratings agencies…

Back in Europe, and the Open Europe thinktank has published an interesting theorette today – about how Germany’s far left Die Linke party could hold the balance of power after the general elections on 22 September:

This is how Merkel could flunk the elections: enter the Far Left

It all relies on the fact that parties need to win 5% of the vote to win seats in the Bundestag, and Angela Merkel’s coalition partners, the Free Democrats, are hovering close to the cliff-edge. Should FPD drop below 5%, Merkel’s CDU would (probably) not win a majority on their own, so Die Linke could prop up a left-leaning coalition instead.

One problem with this theory is that the Social Democrat’s have ruled out a deal with their left-wing friends (or ‘nutters’, as Open Europe puts it). But election results can lead to funny alliances….

Updated

Mohamed El-Erian, chief executive of bond trading giant Pimco, reckons the Fed could well begin tapering this month despite the weaker-than-expected jobs data.

He told Reuters:

The market is taking this morning’s somewhat disappointing data as suggesting that the Fed will not taper in September. I am not so sure that is the case. The detailed numbers also illustrate the problem of growing inequality in American society.

That’s an interesting line for El-Erian to take, given Pimco’s exposure to the US bond market (where bond prices fall when tapering looks more likely).

Updated

Capital Economics says today’s US jobs data is a “mixed bag”. The Fed could take it as a green light to start tapering its QE programme (as the unemployment rate fell), or as a warning (as June and July’s data was revised down).

Our best guess is that the cumulative evidence of improvement over the past year will convince a majority of officials that the tapering should begin at the next FOMC meeting later this month, but we’re not going to pretend this is a certainty.

That didn’t last long. The Dow is now off by 120 points, and European markets are also in the red.

I don’t think US unemployment is the reason, though. World leaders are speaking to the press in St Petersburg following the G20 summit, and there’s no breakthrough over Syria. Instead, president Putin has declared that he and president Obama are still at odds.

As our G20 live blog explains:

“We stuck to our guns,” Putin said according to a live translation.

The Wall Street opening bell has been rung, and shares are inching higher in New York.

The Dow Jones industrial average is up 47 points at 14985, +0.3%, with the S&P 500 and the Nasdaq rising by similar amounts.

Updated

Our Wall Street correspondent Dominic Rushe writes:

Unemployment in the US fell slightly to 7.3% in July, its lowest level in over four years, but the sluggish pace of recovery continued as the economy added just 169,000 new jobs.

The latest nonfarm payroll figures come at a crucial moment for the Federal Reserve, which is weighing when and whether to cut its $85bn-a-month economic stimulus programme, known as quantitative easing (QE). Fed chairman Ben Bernanke has tied cuts in QE to the health of the job market. The federal reserve open markets committee (FOMC), which is split on when to pull back on the QE programme, meets on September 17-18.

The jobless rate has now fallen from 8.1% a year ago but the pace of job creation remains slow and the Labor Department revised down its numbers for the previous two months after concluding job growth was less than expected.

The US added jobs in retail, healthcare, food services and drinking places, professional and business services, and wholesale trade in August, said the bureau of labor statistics.

Here’s his full story: US unemployment rate drops to 7.3% amid sluggish economic recovery

Another ace graph from Bloomberg’s Michael McDonough, showing how participation by young people in the jobs market has fallen steadily over the last 23 years, while it has risen among the over 65s:

And here’s another line from the Non-Farm Payroll report, looking behind that headline unemployment rate of 7.3%:

Among the major worker groups, the unemployment rates for adult men (7.1%), adult women (6.3%), teenagers (22.7%), whites (6.4%), blacks (13.0%), and Hispanics (9.3%) showed little change in August.

The jobless rate for Asians was 5.1% (not seasonally adjusted), little changed from a year earlier.

Ishaq Siddiqi, market strategist at ETX Capital, says it’s “unwise to say tapering is off the cards in September but it definitely has given the Fed and the market food for thought.

In the bond markets, government borrowing costs have dropped — another sign that the Federal Reserve is now less likely to start aggressively tapering its QE programme.

Traders are rushing to buy sovereign debt, which pushes down the yield (interest rate).

US 10-year Treasury yield: 2.88%, down from 2.97% overnight

UK 10-year gilt yield: 2.93%, down from 3% overnight

German 10-year bund yield: 1.94%, down from 2.04% overnight

Updated

Economics professor Nouriel Roubini insists today’s jobs data means the US Fed should not slow its stimulus programme yet:

Taper off?

Traders in the City and on Wall Street are calculating that today’s Non-Farm Payroll report makes it less likely that the Federal Reserve will begin slowing its stimulus package this month. And when tapering begins, it could be at a slower rate than previously expected.

With fewer jobs created in August than expected (169k vs 184k), and 74,000 fewer people hired in the previous too months, America’s labour market does not look as strong as expected.

And with the turmoil in the Middle East continuing, the Fed has other reasons to be cautious.

The Fed is currently buying $85bn of bonds each month through its quantitative easing bond-buying programme every month. So the longer it runs, and the slower it tapers, the more money will be pumped into the system.

Market reaction

Shares are rallying, gold is up, and the dollar is down since the US jobs data was released.

Most currencies are strengthening against the US dollar — sterling has gained half a cent to $1.564. Emerging market currencies are bouncing, with the Brazilian real up 1% against the dollar. The euro has gained 0.2%.

In London the FTSE 100 is up 20 points. And gold is up $20 per ounce at $1,388/oz.

Some instant reaction:

Americans are working a little longer – the average working week increased by 6 minutes (or “0.1 hour”) in August.

Average earnings rose by 5 cents to $24.05. Over the year, average hourly earnings have risen by 52 cents, or 2.2%.

At 7.3%, America’s jobless rate is its lowest since December 2008 (down from 7,4% last month).

But that may not be a good sign, because the US Labour department has also reported that the labour force participation rate has dropped to 63.2%, the lowest since August 1978. That means more people have simply dropped out of America’s potential workforce.

July’s non-farm payroll has been revised lower, to +104,000 new jobs — that’s sharply lower than the 162,000 that was reported a month ago.

And fewer new jobs were created in June as well — 172,000, not the 188,000 that was expected.

That means 74,000 fewer American jobs were created in June and July than we thought.

US Non Farm Payroll released

Breaking: The US economy created 169,000 new jobs in August.

That’s below the consensus forecast that the US non-farm payroll rose by 180,000 last month.

And the jobless rate has fallen to 7.3%. However, previous data for June and July has been revised down….

More to follow!

06-Sep-2013 13:28 – G20 SAYS ADVANCED ECONOMIES COMMIT TO CREDIBLE AND AMBITIOUS MEDIUM-TERM FISCAL STRATEGIES

G20 statement released

Over to St Petersburg very briefly — the G20 communique is just hitting the wires.

  • 06-Sep-2013 13:22 – G20 COMMUNIQUE SAYS WORK ON PUTTING WORLD ECONOMY ON PATH TO RECOVERY IS NOT YET COMPLETE
  • 06-Sep-2013 13:23 – G20 SAYS URGENT NEED IS TO INCREASE THE MOMENTUM OF THE GLOBAL RECOVERY – COMMUNIQUE
  • 06-Sep-2013 13:24 – G20 SAYS CHALLENGES TO GLOBAL ECONOMY ARE UNEMPLOYMENT, WEAK GROWTH, FINANCIAL MARKET FRAGMENTATION IN EUROPE
  • 06-Sep-2013 13:25 – G20 SAYS SLOWER GROWTH IN EMERGING MARKET ECONOMIES CAUSED IN SOME CASES BY VOLATILE CAPITAL FLOWS
  • 06-Sep-2013 13:26 – G20 REMAINS MINDFUL OF RISKS, UNINTENDED NEGATIVE SIDE EFFECTS OF EXTENDED PERIODS OF MONETARY EASING

Updated

Other key things to watch out for in the Non-Farm statement (coming in 8 minutes…) include …. the headline US unemployment rate (7.4% last month), the measures of average earnings (is pay going up?), and the labour force participation rate (measuring the percentage of the population available for work).

Analysts will also be watching to see if the US Labour Department revises its previous data.

This Bloomberg graph shows how the borrowing costs of major economies such as the UK and Germany, and emerging markets, have risen since the prospect of the Fed slowing, or ‘tapering’, its bond-buying programme emerged

It’s via Bloomberg’s global head of economics, Michael McDonough.

Updated

What happens if August’s US non-farm payroll is significantly different from the consensus forecast of 180,000 new jobs?

Joe Bond of City firm Abshire Smith has some suggestions for how markets could react — based on the idea that a strong reading increases the chances that the Fed will start cutting its bond-buying stimulus programme this month.

• Above 200K jobs would see the US dollar (USD) bid across the board, further weakness for emerging market currencies and gold

• 170-200K would still be bullish (average print for the year slightly north of 180K)

• Below 170K would be a poor number, with USD offered, and Gold bid

•Anything below 120K would be a huge disappointment, providing large volatility for USD and Gold.

I mentioned earlier that the consensus forecast is that 180,000 new jobs were created in the US last month. Each analyst, though, has a different guesstimate — and they range from just 79,000 to as much as 220,000, as market analysts RANsquawk explains:

Non-farm payroll coming soon…

Just 45 minutes to go until the US jobs data for August is released (at 1.30pm BST, or 8.30am EDT), and European markets are jittery. Most indices are lower, as traders wait for the big number of the day.

Chris Beauchamp of IG Index says it’s been a nervous morning after some busy days:

It’s been a busy week really; economic news, geopolitical concerns and tapering worries have all have been thrown at investors in one form or another…the overall impression is one of extreme caution.

With non-farm payrolls out today, this caution has only been heightened.

One for twitter users who want to relive the dark days of Lehman Brothers:

Updated

This chart shows how Greece’s GDP slump has slowed over the last six quarters (including the 3.8% annual contraction in the last quarter reported this morning), but is still some way from ending.

Updated

Germany has reported a sharp fall in industrial production during July.

Output across German industry dropped by 1.7% on a month-on-month basis, much worse than the 0.5% drop that was expected.

The German economy ministry said the drop was due “not least” to a strong June (when output jumped by 2%), insisting that conditions are improving:

The weak phase is over… Overall, the upward trend appears to be continuing moderately in manufacturing and significantly stronger in construction.

But with exports dropping by 1.1% in July (see 8.01am), it doesn’t feel like July was a knockout month for Germany.

Speaking of Greece… security will be tight in the city of Thessaloniki tomorrow when prime minister Antonis Samaras visits its annual trade fair

Local media report that 4,000 police officers, including motorcycle patrols and two helicopters, will be on duty at the 78th Thessaloniki International Fair (TIF), which Samaras will open with a keynote speech.

Samaras is expected to argue that the Greek economy is improving (so he should be encouraged by this morning’s GDP data).

Government opponents, though, will be holding an anti-austerity rally on Saturday, from 6pm Greek time.

Greece’s Kathimerini newspaper has more details:

The premier, who is to address businessmen in the morning and not in the traditional evening speech, will reportedly try to reassure entrepreneurs, and citizens in general, that Greece’s economy is improving, slowly but surely, and that no more austerity measures are on the cards.

Samaras is also expected to stress the importance of Greece clinching a primary surplus this year, as appears likely, as this will allow the government to offer some relief to lower-income Greeks. The premier had indicated in an interview last week that 70 percent of the primary surplus, if it is achieved, will go toward support for those on low pensions.

Updated

Greece’s long, grim depression could finally be turning a corner.

Its economy is still contracting, but at a rather slower pace.

The country’s economy shrank by 3.8% on a year-on-year basis in the second quarter of this year, updated data shows. That’s a significantly smaller decline than the 5.6% annual contraction measured in the first three months.

Greece doesn’t report quarter-on-quarter data like most other countries, so it’s hard to tell exactly how the economy performed between April and June. It’s clear, though, that the contraction must have eased.

Good timing, as the eurozone faces up to the task of patching up its finances again next year.

Updated

The British public are taking Mark Carney seriously, even if the City are not.

A quarterly survey of inflation expectations found that the number of people who expect interest rates to rise in the next 12 months has fallen to its lowest level since November 2008, at just 29%.

Inflation expectations have also fallen to the lowest since August 2012.

The survey of 2,500 Brits took between August 8th and 13th. Carney announced on August 7th that rates will not rise from their record lows until the UK jobless rate has dropped to 7% from 7.8%, which the Bank doesn’t see until 2016.

Governor Carney should be reassured by this data, particularly as inflation expectations are one factor that could force him to abandon the plan.

Some City traders, though, are pricing in a rate rise by the end of 2014.

The survey also found that public confidence in the Bank of England had dropped to a nine-month low, with a net balance of +15 people believing it was doing a good job. 

The disappointing UK trade and industrial production data this morning have prompted experts to warn that economic conditions in Britain, and beyond, may not be as rosy as hoped

Britain’s widening trade gap in July (9.40am )was primarily caused by a sharp drop in exports to countries outside the EU. Exports of all commodities except fuel fell during the month, the Office for National Statistics reported, led by a decrease in exports of “finished manufactures”.

Here’s the key points from the ONS release:

  • Seasonally adjusted, the UK’s deficit on trade in goods and services was estimated to have been £3.1bn in July, compared with a deficit of £1.3bn in June.
  • There was a deficit of £9.9bn on goods, partly offset by an estimated surplus of £6.8bn on services.
  • Exports of goods fell 7.6% on the month to £24.8bn for July 2013. Imports for the same period fell 1.0% to £34.7bn
  • In July 2013, exports of goods to countries outside of the European Union (EU) decreased by £2.2bn to £11.8bn. Exports to countries within the EU increased by £0.2bn over the same period to £13bn.

On a slightly longer-term view, imports outstripped exports over the last three months:

  • The deficit on trade in goods increased £0.3bn to £26.8bn in the three months to July 2013 from £26.5bn in the three months to April 2013. Exports of goods in the three months to July 2013 increased to £77.4bn and compared to the previous year, increased by 1.6%. Imports of goods also increased over the same period to a record high of £104.2bn and compared to the previous year, increased by 3.1%.

Updated

UK trade deficit widens and industrial production stays flat

Britain’s trade deficit more than doubled in July, and industrial production failed to grow as expected.

The data, just released, is a rare reversal for the UK after recent strong economic statistics that have suggested the recovery has legs.

The UK trade deficit in goods and services widened to £3.085bn, the worst monthly reading since October 2012. Twice as wide as June’s figure, it doesn’t suggest that that UK economy has moved into a more robust, manufacturing led revival as hoped (although these monthly readings are rather volatile).

Industrial production, meanwhile, was flat month-on-month in July, dashing hopes of a 0.1% rise. Within the data, manufacturing rose by 0.2% month-on-month, compared with hopes of a 0.3% rise.

More to follow……

There was drama in the Cyprus parliament last night where MPs rejected crucial legislation related to its bailout package, before eventually falling into line. 

A vote on laws to bring its ‘co-operation banks’ under the control of the Cypriot central bank was narrowly defeated, raising the sudden threat that its aid programme could be derailed. But after meeting late into the night, the legislation was finally approved:

Reuters reports:

 In a marathon voting session, legislators agreed to a clause enabling co-op banks to receive €1.5bn ($1.97bn) in bailout money.

In an earlier vote, it had been narrowly rejected by lawmakers from the island’s opposition left-wing parties, who oppose any bailout conditions.

Parliamentary approval for restructuring co-ops, which are small commercial lenders, is crucial to Cyprus receiving the next aid installment of €1.5bn from international lenders. The money will be ploughed into the lenders to recapitalise them. In a second vote in the early hours of Friday, parliament approved the restructuring of the co-ops, finance ministry sources said.

The second vote was in the great traditions of European Union democracy, argues Michael Hewson of CMC Markets:

There was two votes in the Cypriot parliament before politicians arrived at the “right” decision with respect to the latest bailout package in what has become a very European past time. If you don’t get the result you want in the first vote, vote again until you get the right outcome.

One more gobbet of economic news — UK house prices are rising at their fastest rate since 2010.

Halifax reported that prices jumped by 5.4% in the three months to August, compared with a year ago. However, the lender argues that the trend is slowing, as prices were only up by 0.4% last month compared with 0.9% in July.

Halifax housing economist Martin Ellis reckons:

Relatively modest economic growth and below inflation rises in earnings are likely to act as a brake on the market. Overall, house prices are expected to rise gradually over the remainder of the year.

But while prices keep rising, critics of George Osborne will probably keep warning that the chancellor is fueling a dangerous housing bubble with his ‘help to buy’mortgage subsidy scheme.

French consumer confidence is also up, rising from 82 in July in 84 in August.

Best reading since April, showing a recovery from the record low of 79 high in May and June. Still some way to get back to the long-term average of 100, though…

There’s good news for Germany’s banks this morning. Moody’s has raised its outlook on the sector from negative to stable, which removes the threat of a downgrade.

The ratings agency said the move reflected “ a year of reduced crisis-related losses and improved capital strength”. It cited four reasons for the upgrade:

  • prospects of a stable operating environment due to an improving economy and benign credit environment;
  • continued strengthening of the banks’ capital buffers due, in part, to more stringent capital requirements;
  • the stabilising effect of an ongoing reduction in high-risk assets and deleveraging; and
  • improved refinancing structures and ample liquidity buffers, which imply low funding risk.

Here’s the full statement.

Another encouraging signal for the eurozone. Worth noting, though, that we’re still waiting for the ECB’s next stress test, or asset quality review, of euro area banks…

This morning’s early trade data shows that Germany’s trade surplus has shrunk, and France’s trade deficit has widened.

German exports dropped by 1.1 % in July, dashing economist expectations of a 0.8% rise. And with imports up by 0.5%, the German surplus narrowed to €14.5bn, from €15.8bn in June.

Stefan Schilbe at HSBC Trinkaus told Reuters it was “a disappointment”, adding:

But we can be hopeful that the picture will change for the better in coming months. Leading indicators in industrial states – from the United States to Britain and the euro zone states – are pointing upwards.

Arguably a Germany that imports a little more, and exports a little less, is good for the rest of the eurozone as it tries to rebalance its economy.

Over in France, the trade deficit widened to €5.109bn in July, from €4.484bn in June. The French Customs Office blamed a jump in imports due to higher energy costs, and supplies for its aerospace industry.

Waiting for Non-Farm

Good morning, and welcome to our rolling coverage of the latest events across the global economy, the financial markets, the eurozone and the business world.

Today’s big event in the financial world is the latest US jobs data, which will be unleashed on an expectant financial world after lunchtime in Europe (1.30pm BST, or 8.30am New York time).

The non-farm payroll always makes a splash, as it shows how many new jobs were created (or lost) in the world’s biggest economy the previous month. Today’s number is pretty special – it could prompt America’s Federal Reserve central bank to start slowing its stimulus package, if it judges that the US economy is finally strong enough to take it.

Economists expect around 180,000 new jobs were created in the US last month (excluding the agriculture sector), up from 162,000 in July. But non-farm is notoriously tricky to predict….

This graph from Marketwatch shows the monthly non-farm payroll since the start of last year — job creation has been generally steady, rather than spectacular…

The implications of the Fed ‘tapering’ its $85bn bond-buying programme are significant for the world economy. Taper anticipation is one factor pushing up government borrowing costs (the UK 10-year gilt yield hit 3% yesterday, while 10-year bund yields are over 2%).

Also coming up today, we have trade data from key European countries and the latest UK industrial output stats. Germany has already reported a surprise drop in exports in July (more to follow…)

I’ll also be watching the eurozone closely, as speculation mounts over a future aid package for Greece in 2014….

Updated

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USA 

The UK service sector has posted its biggest leap in activity in over six years. Germany drags the eurozone back to growth. The head of the Dallas Federal Reserve Bank has declared that the Fed is almost ready to start slowing the US monetary stimulus program…

 


Powered by Guardian.co.ukThis article titled “Eurozone private sector returns to growth, as UK service sector surges to six-year high – as it happened” was written by Graeme Wearden, for theguardian.com on Monday 5th August 2013 13.28 UTC

6.21pm BST

Closing summary

Time to wrap up for the day.

Here’s a brief closing summary.

The UK service sector has posted its biggest leap in activity in over six years. The monthly PMI survey, conducted by Markit, jumped to 60.2 in July, showing strong growth, and suggesting the UK recovery continues to pick up pace.

Details from 9.,39am onwards.

Analyst reaction at 10.14am

There was also optimism in the eurozone that the recession is over. PMI surveys from the region indicated that its private sector had finally returned to growth. Germany led the way, and there were signs of stabilisation in Spain and Italy.

The eurozone data is covered at 9.18am

The key highlights by country begin at 8.31am

• However, other countries performed less strongly. Brazil (see 2.19pm), India and Russia (8.10am) all saw a fall in service sector activity.

Meanwhile in the eurozone…

there were fresh protests against public sector job cuts in Greece (see 1.24pm and 12.50pm)…

…as Italy remained gripped by Silvio Berlusconi’s conviction for tax fraud (see 11.12am)…

…and the IMF urged France to rein in its austerity programme in 2014 (see 4.41pm)

I’ll be back tomorrow. Thanks for the great comments, as ever, and goodnight. GW

Updated at 6.23pm BST

5.55pm BST

Markets close

After a bright opening, Europe’s stock markets have closed with losses in London, and little change elsewhere today.

The news that Britain’s service sector enjoyed a bumper July, and that the eurozone private sector returned to growth, didn’t spark much of a rally.

In London, the FTSE 100 was dragged down by HSBC — which warned of an emerging market slowdown in today’s financial results.

David Madden, market analyst at IG, commented:

In London, the banking sector dragged the market lower after HSBC’s first-half figures were good but not good enough to entice traders to go long.

The largest bank in Europe announced an increase in profit but fell below expectations, prompting traders to unload their positions in the Asian-focused bank. Natural resource stocks initially propped up the FTSE but as the day went on dealers lost their appetite for risk.

And here’s the closing prices:

• FTSE 100: down 28 points at 6619, -0.43%

• German DAX: down 8 points at 8398, -0.1%

• French CAC: up 4 points at 4049, +0.1%

• Italian FTSE MIB: down 21 points at 16757, -0.13%

• Spanish IBEX: down 13 points at 8,560, -0.15%

5.27pm BST

If the cap doesn’t fit….

In the world of banking, HSBC is considering responding to the EU’s cap on bonus payments by boosting the basic salaries paid to its staff.

Our City editor, Jill Treanor, reports:

Speaking from Hong Kong, [chairman Douglas] Flint said one of the options being considered to tackle the bonus cap was a potential pay rise for staff and he said he was confident that shareholders would support policies intended to keep the bank competitive.

"We are looking at a whole range of things," he said.

Here’s the full story: HSBC may raise banker pay to overcome bonus cap

Updated at 5.40pm BST

4.55pm BST

Fed’s Fisher: Tapering is looming

Over in America, the head of the Dallas Federal Reserve Bank has declared that the Fed is almost ready to start slowing the US monetary stimulus programme.

President Richard Fisher told the National Association of State Retirement Administrators that the moment of ‘execution’ on ‘tapering’ the US bond-buying programme (currently bn per month) was close.

Here’s the key quote:

Having stated this quite clearly, and with the unemployment rate having come down to 7.4%, I would say that the (Fed’s policy-setting) committee is now closer to execution mode, pondering the right time to begin reducing its purchases, assuming there is no intervening reversal in economic momentum in coming months.

Fisher also declared that the Fed must avoid ‘market havoc’ when it begins to withdraw the QE punchbowl – having already seen stock markets tumble in May when the prospect was first floated.

4.41pm BST

IMF: France is recovering

The International Monetary Fund has offered the French government some support, and urged Francois Hollande to slow the pace of austerity next year.

France has been criticised for not taking more decisive action to cut its deficit, which is forecast to be 3.9% of GDP this year. But the IMF reckons Paris’s priority must be growth next year, meaning Hollande should ease up on fiscal consolidation.

In its latest report (online here), the IMF warned:

The pace of adjustment should be eased in 2014 relative to current plans in order to support the recovery. Adjustment should also be rebalanced toward expenditure containment.

The IMF also ruled out a surge in growth later this year, predicting that French GDP would shrink by 0.2% in 2013. It also predicted meagre growth in 2014, of just 0.8%.

4.26pm BST

More from JP Morgan. Senior economist Joe Lupton says the global economy made "a positive start" to the third quarter of 2013, but warned:

Although the stronger performance signalled is pleasing in itself, the structure remains uncomfortably uneven by region, particularly with regard to job creation.

4.17pm BST

Global private sector activity hits 16-month high

JP Morgan has added up all July’s PMI data, and concluded that the global services sector posted a healthy increase in activity last month, from 51.1 to 54.9.

This meant stronger growth across the global private sector too, with a PMI of 54.1, the highest level in 16 months, up from 51.2 in June.

Here’s the details:

Updated at 4.24pm BST

4.03pm BST

Putin pays Berlusconi a visit

Back to Italy, where Silvio Berlusconi is receiving a friendly visit from none other than Russian president Vladimir Putin.

That’s according to La Stampa, which reports that "Vladimir Putin, President of Russia, arrived in Rome to meet with his great friend Silvio Berlusconi".

Berlusconi’s conviction for tax fraud clearly didn’t deter Putin from making the date to see his long-time ally.

More here: Putin in visita da Berlusconi

3.45pm BST

This handy graph from Reuters compares the service sector growth in the US (dark blue), the eurozone (light blue) and China (green) over the last five years:

Larger version here.

Updated at 3.51pm BST

3.34pm BST

Duncan Weldon: 5 thoughts on the service sector surge

Duncan Weldon, the TUC’s senior policy advisor, agrees that the jump in British service sector output in July (9.39am) is good news.

He cautions, though, that the economy is still a tough place for many people.

He’s blogged five quick thoughts on the data, including:

Third, the real measure of the recovery will be found in falling unemployment and rising real wages and living standards. We have a triple crisis of jobs, wages and investment and a very long way to go to get out of them.

Here’s the full piece:

The Service Sector PMI: 5 Quick Thoughts

Updated at 5.06pm BST

3.16pm BST

US service sector also posts strong growth

America’s services sector has followed the UK by posting forecast-smashing activity for July.

The US ISM Non-Manufacturing Composite index (which measures its service sector) jumped to 56.0 last month, up from the three-year low of 52.2 reported in June.

That’s the highest reading since February, and indicates much stronger growth. Economists had expected a reading of 53.1.

The jump in the monthly index was mainly due to a surge in new orders (the sub-index leapt to 57.7 from 50.8 in June).

2.48pm BST

2006 and all that

Last month’s surge in UK service sector activity (see 9.39am onwards) is the best monthly performance in over six years. Apart from that, though, July 2013 and December 2006 have little else in common.

The recession, and its aftermath, has pushed Britain’s jobless rate up to 7.8%, from 5.5% six and a half years ago. Interest rates were 5% – compared to 0.5% today. And Tony Blair hadn’t got round to swapping Downing Street for a new career as Middle East envoy and JP Morganite.

My colleague Angela Monaghan has more here:

UK service sector high: the last time we had it so good was 2006

Updated at 2.48pm BST

2.19pm BST

Brazil’s private sector activity falls

More economic data, this time from Brazil — where service sector activity has fallen.

Markit’s Brazilian Services PMI dropped from 51.0 in June to 50.3 in July. That’s enough to drag the wider private sector PMI down to 49.6, into contraction territory.

New orders fell and job creation was unchanged.

It’s another sign of slowing growth in emerging markets, after India’s service sector output shrank for the first time since October 2011 (see opening post).

The drop in activity was also blamed on the anti-government protests which began in cities across Brazil in June.

Updated at 2.28pm BST

1.24pm BST

Photos: Greek workers march

A few more photos from Athens of today’s protest by employees from the Greek Manpower Employment Organization and the social security offices (as mentioned at 12.50pm):

12.57pm BST

Strike watch (2): German canal workers protest

Greece isn’t the only country experiencing industrial action today. In Germany, the country’s canal workers have downed tools today in a row over job cuts.

Transport on the country’s canal network is likely to be hit, as Reuters reports:

Several canals in Germany will be partially blocked to cargo shipping this week due to renewed strikes by lock operators, German trade union Ver.di said on Monday.

The strikes, set to last the rest of the week, are in protest against government plans to restructure the German inland navigation authority WSA.

Traders said they did not expect the strikes to cause widespread disruption and that shipment delays were likely to be local and restricted to smaller canals.

12.50pm BST

Strike watch (1): Protests in Athens over public sector cuts

In Greece, workers at the country’s employment offices pension fund are holding a walk-out today in the latest protest at planned job cuts.

Despite regular protests, the Athens government continues to push on with its targets for cutting 15,000 pubilc sector positions by the end of 2014.

Administrative reform minister Kyriakos Mitsotakis told Mega TV that 12,500 workers will be transferred to the new labour pool (which can lead to redeployment or redundancy).

Mitsotakis said:

The truth is that the ministries have lived up to the commitment they made to the prime minister and we have formed a clear timeline about how we will keep to one of our main pledges to have 12,500 people in the scheme by the end of September.

More here: Mitsotakis confident Greece will meet civil service target by September

Updated at 1.17pm BST

12.06pm BST

The latest retail sales from the eurozone show that the region’s consumers are still facing hard times.

Sales across the euro area sales in the euro zone fell for the first time in three months in June, dropping 0.5% compared with May, as households continued to struggle.

The largest monthly decreases were registered in Estonia (-3.3%), Hungary (-1.9%), Austria (-1.7%) and Germany (-1.5%)

Malta (+1.8%), Luxembourg (+1.3%) and Denmark (+1.2%) bucked the trend with rising sales compared with May.

And on a year-on-year basis, recession-hit Spain showed the largest decline, falling by 6.9% compared with June 2012.

11.28am BST

Key event

Here’s our full news story on the UK service sector’s knock-out performance last month:

UK service sector hits pre-crisis levels, boosting growth hopes

11.26am BST

Alberto Nardelli: Italian government’s lifetime is shortened

Speaking of Silvio Berlusconi (11.12am), political analyst Alberto Nardelli flags up that the next key development is a vote in the Senate in September to rubberstamp his sentence:

As the odds are significantly stacked against Berlusconi (8-15 in the committee which decides on immunity, and 117-198 in the senate itself which would need to vote on the committee’s decision), he may decide to directly step down as a senator. Berlusconi will also need to decide (by mid-October) how he intends to serve his one year sentence (house arrest or community service).

Nardelli also suggests that Italy faces the real prospect of another election within the year:

In summary, I believe the lifetime of the current government has been inevitably shortened and I wouldn’t bet on it lasting a full-term, and 12 more months are probably also optimistic at this point. The earliest an election could take place is November, but a spring 2014 election is more likely.

More here: Italy – what could happen next (politically)

11.12am BST

Berlusconi conviction still grips Italy

Silvio Berlusconi continues to dominate the news in Italy following his failure to overturn a conviction and jail term for tax fraud last weekend.

Yesterday, hundreds of supporters gathered outside the former PM’s home to protest against the sentence, and were treated to a classic appearance from Berlusconi himself.

Despondent at one stage, and celebratory at another, Berlusconi insisted he was innocent, while also showing support for the country’s coalition.

He declared:

I am here. I am staying here. I won’t give up. We will continue together to fight this battle for democracy and freedom.

(full story by Lizzy Davies here)

Senior members of Berlusconi’s People of Freedom (PdL) party are due to meet President Giorgio Napolitano today to discuss his future.

The ANSA news agency reports:

PdL Senate whip Renato Schifani and House whip Renato Brunetta are expected to discuss ways to make it possible for Berlusconi to stay active in politics after the four-year prison sentence – three of which have been commuted because of an amnesty – comes into effect in October.

PdL supporters are pushing for Berlusconi to be pardoned. But, as ANSA explains, that’s a tough sell:

This could be difficult for Napolitano to do for many reasons, including the fact that Berlusconi is appealing against two other criminal convictions, a seven-year sentence for paying for sex with an underage prostitute and a one-year term for involvement in the publication of an illegally obtained wiretap.

10.49am BST

FTSE 100 rises on Lloyds sell-off rumours

Europe’s stock markets hit two month highs this morning, following the news that the eurozone private sector returned to growth last month (see 9.18am)

In London, the FTSE 100 is up 12 points at 6660, led by Lloyds Banking Group (+4% at 76/7p). That is driven by speculation that the UK government is on the brink of selling some of its 38% stake in the bank.

My colleague Jill Treanor wites:

Shares in Lloyds Banking Group have hit their highest levels in almost three years amid speculation that the government could begin to sell off its 39% stake in the bailed-out bank.

The shares were trading above 76p on Monday, higher than the 73.6p average price at which the government bought its stake in the bank in 2008 and 2009.

They have now enjoyed a sustained rise since António Horta-Osório, the Lloyds boss, said last week it was now up to the government when and how to sell the shares.

More here: Lloyds shares above 76p, fuelling sell-off expectations

10.23am BST

Pound rallies

Good news for UK readers poised for a well-earned foreign holiday – sterling is strengthening against other major currencies following today’s service sector report.

The pound is up three-quarters of a cent against the US dollar, at .5363, and has also gained half a euro cent against the euro to €1.156.

10.14am BST

UK services sector PMI: what the experts say

City economists agree that today’s strong service sector data (see 9.39am) shows Britain’s recovery is taking root.

Robert Wood of Berenberg headlined his research note "UK: WOW" – underlining the surprisingly strong surge in service sector activity last month.

Wood wrote:

From zero to hero in six months, the UK is flying as tumbling mortgage rates and rising confidence are driving a consumer led recovery. Monetary policy is working….

With continued support from the Bank of England, the quagmire of the past couple of years will recede rapidly in the rear-view mirror. We expect the recovery to move onto a firmer footing next year, supported by rising real wages and recovery in the Eurozone. The UK is certainly not facing a ‘new normal’ of weak growth.

Howard Archer of IHS Global Insight called it a:

show-stopping survey that completes a very impressive hat-trick of improved purchasing managers surveys for July.

Jeremy Cook, chief economist at currency firm World First, commented that ‘the good news keep coming". But Cook also warned that the recovery remains fragile:

The key to this, and the sustainability of the recovery, is the confidence around the employment components of these surveys – jobs will only be added if these levels of growth are sustained. Wages should also increase along the way as well further improving confidence and lessening the gap between wage settlements and price rises.

Although the improvement in the weather has helped things, I do worry about sales being dragged forward from months in the future. There could be a potential ‘deflating of the balloon’ as we move through the rest of the year, and when consumers begin to save cash for the inevitable Christmas splurge.

Economist Shaun Richards also tweeted that Britain made a strong start to the third quarter of 2013:

While Deutsche Bank flags up that the service sector’s growth poses some interesting questions for the Bank of England, which releases its next inflation report on Wednesday (with thanks to The Times’s economics editor, Sam Fleming). The BoE is expected to flesh out its new ‘forward guidance’, effectively promising to keep borowing costs low until the economy improves…..

10.10am BST

Today’s blowout reading comes after six months of steadily rising activity in the UK service sector, as this image shows: (anything above 50 = growth).

9.54am BST

Graph: Britain’s surging services sector

Services makes up around three-quarters of the UK economy, and this graph shows how the surge in activity last month could equate to a jump in GDP:

The full report is online here (pdf).

9.39am BST

UK services data smashes forecasts

Britain’s dominant services sector has recorded its best monthly performance since before the financial crisis began, smashing analyst forecasts and suggesting the recovery is gathering pace.

The UK service sector PMI index has surged to 60.2 up from June’s 56.9. That’s the strongest monthly reading since late 2006, and shows extremely strong growth.

The survey found a solid rise in new orders, driving optimism higher across the service sector. Underlying demand was reported to be stronger, with firms saying they see better conditions both at home and abroad.

Recent good weather in the UK, and a recovery in the housing market, were also credited with driving the service sector in July.

A separate survey last Thursday showed that Britain’s factory activity hit its highest level since 2011 last month.

Taken together, the two reports suggest that Britain’s economic recovery is well underway.

And with the eurozone private sector also returning to growth in July (see 9.18am), Europe’s prospects look brighter.

David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, commented:

The services sector stormed to a six year high in July, registering levels of performance not seen since before the financial crisis. Combined with the
manufacturing and construction figures, this is the clearest sign yet that the UK economy is experiencing a broad based economic recovery and
has the momentum to deliver continued growth. 

The seventh month of sustained, accelerated growth in services was underpinned by improved market conditions both domestically and abroad. Business confidence for UK services is now the
highest it has been for 15 months, allowing businesses to expand, develop new products and increase their fees.

The steep rise in new business and the sharpest rise in backlogs of work since 2010 have put some pressure on capacity, giving firms the conviction to take on more staff and increase wages, which have been stagnant for a long time. Taken together, these could signal a significant month in the turnaround of the fortunes of UK plc.

More to follow….

9.25am BST

Howard Archer of IHS Global Insight agrees that today’s data (see 9.18am) shows that the eurozone economy has stopped shrinking:

The near stabilization in Eurozone services activity in July fuels hope that Eurozone GDP has finally stopped contracting and is on course to eke out marginal growth over the second half of the year.

Furthermore, all countries saw an improved services performance in July compared to June.

However the recovery will be constrained by tight fiscal policy, record unemployment and "limited consumer purchasing power", Archer added.

9.18am BST

Relief for eurozone as private sector starts expanding

It’s official… the eurozone’s battered private sector has posted a rise in activity for the first time since January 2012.

Markit’s survey of thousands of firms across the eurozone showed a final private sector PMI reading of 50.5, which indicates output has risen.

The region’s service sector has almost returned to growth, while data last Thursday shows that manufacturing activity increased last month.

Markit said that the Eurozone economy has stabilised as the "German recovery accelerates and downturns ease in France, Italy and Spain" (see 9.01am for the data). Job losses slowed, and business confidence hit a 16-month high.

Here’s the key data (where 50 = the gap between expansion and contraction)

• Germany: 52.1 5-month high
• Italy: 49.7 26-month high
• France: 49.1 17-month high
• Spain: 48.6 25-month high

Rob Dobson, senior economist at Markit, said the data showed "a welcome return to growth for the Eurozone economy", boosting hopes that the recession will end this quarter.

Granted, the euro area has experienced false dawns before, but the improvements in confidence and other forward-looking indicators warrant at least some optimism for the outlook this time around. Germany posted a return to expansion in July, while the downturns in the other big-four economies all eased.

Dobson added that export demand had driven growth in the eurozone manufacturing sector, but there are also signs of recovery in domestic markets.

However…

The labour market remains the main bugbear of the eurozone, as rising joblessness hurts growth and raises political and social tensions.

9.01am BST

Signs of recovery in Europs

Back in the eurozone.. and Italy, Germany and France are all showing signs of recovery.

Activity in Italy’s service sector has hit a two year high in July, rising to 48.7 on Markit’s index — much stronger than June’s 45.8. Still a contraction, but at a much slower pace.

In France, the service sector posted its best reading in 11 months. Its July Services PMI of 48.6 was an improvement on June’s 47.2.

And, as predicted, Germany’s service sector leads the way – with a PMI of 51.3. That indicates growth in Europe’s largest economy for the third month in a row.

8.53am BST

Egypt stands out as the worst-performing of the major Middle East economies, with firms in both Saudi Arabia and the UAE reporting an increase in activity.

Updated at 8.53am BST

8.52am BST

Egypt’s private sector in dire situation

Grim confirmation that Egypt’s economy is contracting at an alarming rate.

Its private sector deteriorated sharply in July, with the headline PMI diving to 41.7, down from June’s 47.5. That’s a very sharp drop in activity. No surprise, given the political turmoil and violence that grips the country following the overthrow of Mohamed Morsi’s presidency at the start of July.

The number of people in work fell during July, and orders from overseas also dropped.

Simon Williams, chief economist for the Middle East at HSBC, warned that Egypt’s situation was perilous.

Political order is a prerequisite for recovery, but even if that is achieved, it will prove very challenging to quickly reverse the losses of the past 10 months.

8.35am BST

Graph: Spanish PMI vs GDP

And here’s a graph comparing Spain’s service sector PMI to its GDP — showing how the worst of its recession could be over…..

Updated at 8.37am BST

8.31am BST

Spain: Services downturn slows

The long slump in Spain’s service sector has eased, but firms are still suffering a drop in activity.

That’s the message from its Services PMI, which came in at 48.5, up from 47.8 in June. The best reading in nearly a year, but still a decline.

Markit, which compiled the data, said the decline in activity was slowing, suggesting Spain’s two-year recession could finally be over by Christmas:

Andrew Harker, senior economist at Markit and author of the report, commented;

The Spanish service sector came close to a change of momentum in July, with the rate of contraction in activity easing further during the month.

Should this current trend be built upon, we could be in line to see a return to growth of GDP by the end of the year.

This remains far from assured, however, with service providers continuing to highlight the effects of the economic crisis in their responses to the latest survey.
 
 
 

8.25am BST

Sweden roars back

Sweden’s service sector has roared back into growth, with a PMI of 56.6 – up from 44.8 in June.

Encouraging news for the Swedish economy, which suffered a rare (but small) contraction in the last three months (details).

8.19am BST

What we expect from Europe

This morning’s data is expected to show that Germany is the only eurozone member whose service sector is actually growing.

Michael Hewson of CMC Markets rounds up the predictions:

Of all the countries only Germany’s PMI is expected to show any form of expansion with a reading of 52.5 expected.

All the others are expected to show an improvement but are still expected to remain firmly stuck in contraction territory. Italy is expected to improve to 46.5, Spain 48.1 and France 48.3, while the broader European measure is expected to come in at 49.6.

Meanwhile, the UK service sector is expected to show stonking growth, with a PMI of at least 57, up from 56.9 in June.

Updated at 8.19am BST

8.10am BST

Service sector data adds to India’s gloom

Good morning, and welcome to our rolling coverage of the latest events across the eurozone, the financial markets and the global economy.

It’s a big day for economic data, with a string of surveys showing how the world’s service sectors performed in July. And it’s already begun with alarming signs from two key economies – India and Russia.

The Indian service sector has shrunk for the first time since October 2011, driven by a drop in new orders and weaker economic activity. This means India’s private sector’s output has contracted for the first time in over four years, fuelling fears that its economy is on the slide.

This graph shows how India’s once-buoyant private sector has slipped in recent months:

The Indian service sector PMI tumbled to 47.9, down from 51.7 in June. Any number below 50 shows a fall in activity.

Leif Eskesen, chief economist for India at HSBC – which compiled the data – warned that manufacturing and services companies are both seeing a drop in new work.

Activity in the service sector contracted in July led by a drop in new business, which also led to a decline in optimism among the surveyed companies.

The slump in activity comes as the Reserve Bank of India (RBI) has battled to bolster the rupee, which has hit a series of record lows against the US dollar in recent weeks. Eskesen argued that the RBI will soon need to prioritise growth:

While the RBI has to cater to the currency at the moment, it will eventually need to cater more to growth as economic activity continues to soften.

The picture isn’t too much better in Russia either, where the private sector has suffered its first drop in activity in three years, and hit a four-year low.

The Markit/HSBC Services PMI, released this morning, fell marginally to 48.7 from 48.8 in June — meaning another month of falling activity.

This followed a similar drop in Russian manufacturing output last week, so Russia’s private sector PMI has now slipped to 48.7. That’s the first reading below 50 since August 2010, and the lowest since July 2009.

Russia has been hit by recent falls in commodity prices, which helped to push down privat sector employment.

Alexander Morozov, chief economist for Russia and CIS at HSBC, warned that Russia faces both cyclical and structural problems — with many firms declining to spend more on investment.

Like a duet of synchronised springboard divers, output in services and manufacturing dove in unison at identical rates in July, the HSBC Russia Composite PMI survey revealed.

Apparently, this kind of diving is not the one that can cheer anybody. In essence, it appears that the Russian economy has lost its growth engines, with neither manufacturing nor services being able to sustain overall economic growth alone anymore.

And here’s the obligatory graph:

A bad start to the morning. Can Europe do better? We get service sector from across the eurozone (9am BST), and from the UK (9.30 BST) this morning. Last week’s manufacturing data was encouragin, suggesting that the eurozone recession was over, and Britain’s recovery was gathering pace.

On top of all this economic data, I’ll be tracking the latest political developments across the eurozone area. Italy continues to be gripped by Silvio Bersluconi’s tax fraud conviction, while in Greece prime minister Antonis Samaras is preparing for a trip to America….

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Fears that the central bank money taps could be turned off gripped the markets and sent them sharply lower. Germany’s Schäuble defends ECB. Angela Merkel also supportive. Background to the case. Swiss: social tensions could inflame crisis again…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis as it happened: German court holds crucial hearing into ECB’s bond-buying programme” was written by Graeme Wearden (until 2.30pm) and Nick Fletcher (now), for theguardian.com on Tuesday 11th June 2013 16.39 UTC

5.53pm BST

Weidmann testimony ends

And that wraps up Bundesbank President Jens Weidmann's testimony for the day. Once more Open Europe has helpfully outlined what they see as the main points, along with a bit of commentary:

• [Weidmann] warned that ECB OMT blurs the line between monetary and fiscal policy – this makes it more difficult to achieve price stability and spreads solvency risks amongst eurozone countries but without using any parliamentary/democratic approval

• Pushed for a narrow interpretation of a central bank's primary mandate, complete focus on price stability

• Suggested that the OMT does represent potential losses for taxpayers, since if the ECB took on significant amounts of risky debt it may face a large loss which it cannot absorb and require aid from member states

• Argued that even secondary market purchases can overturn the force of market discipline and undermine fiscal autonomy

• Issued a warning over the interpretation of the real risk premiums for bonds, which he suggested was very subjective and dependent on future policies

• Weidmann did accept that the inflation outlook in the eurozone fits with price stability at the moment but still expressed serious concern about comprising the ECB’s focus on this.

It’s seems to us that, of the two sides, Weidmann had the tougher case to make. Ultimately, as much of the above shows, he is forced to consider hypothetical scenarios and potential worst cases. These are undoubtedly risks that should be highlighted but it does leave one feeling that his argument is slightly less clear cut than Asmussen’s.

Having heard the key testimony of both sides, we still expect the court to side with the ECB but with some caveats (although how strict they will be is very much up in the air). Of course, this could still develop more tomorrow. 

And on that note we are ending our own proceedings until tomorrow. Thanks for all the comments, and we'll be back in the morning.

5.39pm BST

European markets under pressure

Fears that the central bank money taps could be turned off gripped the markets and sent them sharply lower. The Bank of Japan set the trend by keeping monetary policy on hold, and later came trader talk that the US Federal Reserve might use next week's scheduled meeting to begin the process of easing off its bond buying programme. With unrest in Turkey, the Greek privatisation failure and the German court hearing, investors were in a pessimistic mood:

• The FTSE 100 finished 60.37 points or 0.94% lower at 6340.08

• Germany's Dax dropped 1.03% to 8222.46

• France's Cac closed 1.39% lower at 3810.56

• Italy's FTSE MIB lost 1.63% at 16,286

• Spain's Ibex slid 1.68% to 8089.3

Meanwhile the Dow Jones Industrial Average is off its worst levels, down just 20 points or 0.12%.

5.34pm BST

5.19pm BST

Latvia: soon to be the newest member of the eurozone

Latvia was hit hard by the financial crisis, but has made a remarkable recovery without bailouts or riots. Now, despite worries about the future of the eurozone, the country is set to become the latest member of the single currency. Ian Traynor reports in full here but below is a flavour:

In the centre of Riga, a copper figure of Latvia's mythical maiden soars skyward holding three golden stars. Nicknamed Milda, she stands at the top of the Freedom Monument, symbolising the Baltic country's hard-won liberty and independence.

From next January Milda will become a more familiar face across Europe when her likeness is stamped on to €1 and €2 coins to mark Latvia becoming the 18th member of a single currency zone which may, or may not, be emerging from a three-year period of fighting for its life.

For Greeks or Portuguese, the euro may have seemed like a prison in recent years. But for Latvia, or at least for its government and elite, the maiden-faced currency will symbolise freedom and independence, reinforcing the vulnerable small country's integration in the west and another big step in liberating itself from its historical tormentor, Russia.

5.14pm BST

More from Weidmann:

4.36pm BST

Weidmann begins testimony

Bundesbank chief Jens Weidmann – who is likely to argue that ECB boss Mario Draghi's intervention was illegal – is up now at the constitutional court in Karlsruhe and starts by saying price stability is the ECB's core mandate.

He is telling the court he sees a risk the OMT programme could slow eurozone reform efforts and reduce the ECB's credibility.

While admitting the OMT was successful in lowering bond yields, he said it could have long term consequences and could lead to a weakening of fiscal consolidation.

And here's his full statement (in German).

Updated at 5.26pm BST

4.20pm BST

Summary of Asmussen’s testimony

Asmussen has now finished and Open Europe has handily summed up the key points of his testimony:

• The OMT will have the ability to sell bonds as well as buy them, and it will not take them off the market permanently, unlike its forerunner the SMP (in fact Asmussen repeatedly highlighted the differences between the two)

• the OMT is pari passu (equal to) other creditors

• the OMT seeks only to reduce unwarranted interest rate spikes and is not aimed at harmonising financing conditions of member states

• the ECB would react if a country were to try to game the system by converting all its bond issues to a short maturity (of up to three years), but that in any case markets themselves would "see through and deny" such attempts

• the only risks associated with the programme stem from countries operating "un-sound" policies, but that those states that fail to comply with the OMT's conditionality could be faced with the prospect of having to leave the eurozone.

He also said that he would welcome the ECB publishing minutes of its meetings.

Updated at 4.25pm BST

4.01pm BST

Amussen said markets would see through, and deny, any attempts by countries to change 10 year debt to 3 year debt to benefit from the OMT (courtesy Open Europe)

3.46pm BST

And here's a key point, with Asmussen attempting to deal with a major criticism of the bond buying plan:

Asmussen also says he does not expect a debt haircut for any eurozone country.

Here's the full text of his statement to the court.

Updated at 3.48pm BST

3.42pm BST

More from Asmussen, as he distinguishes between the OMT and the ECB's earlier Securities Markets Programme (SMP):

3.26pm BST

Asmussen defends ECB measures at German court

Jörg Asmussen, Germany's representative on the European Central Bank's governing council, is up at the constitutional court again.

He is defending the OMT – its Outright Monetary Transactions or bond buying programme – saying it was the right decision for price stability in the eurozone. He said the ECB measures were necessary, effective and within its legal remit.

He added that the bond buying scheme needed to be unlimited to show the ECB was serious about defending price stablity. The OMT would only suffer losses if states were to default.

But the ECB does not want to, and is not allowed to, substitute actions by democratically-elected governments. The ECB just wanted to prevent a eurozone break-up. He said:

Only a currency whose existence is not in doubt can be a stable currency.

Quote courtesy Reuters.

And he continues:

So to recap – the OMT programme is unlimited and had to be, but is at the same time limited because it is focused on shorter maturity bonds…

Updated at 3.38pm BST

3.10pm BST

Greece to close public broadcaster ERT, say reports

Back in Greece, and the government is said to be planning to close down public broadcaster ERT and re-open it with fewer staff. According to Kathimerini:

Sources said that Prime Minister Antonis Samaras has already taken the decision to pull the plug on the broadcaster in its current form and the government has started drawing up the relevant legislation.

ERT currently employees 2,800 people. It is not clear how many employees will remain but sources indicated it would be a fraction of those in work at the moment.

Updated at 4.11pm BST

2.56pm BST

In case you're wondering, it seems a bit becalmed in Karlsruhe at the moment.

Although…..

Updated at 2.56pm BST

2.48pm BST

Wall Street opens lower

In common with other global markets, Wall Street is also taking a bit of a tanking.

The Dow Jones Industrial Average is down 126 points or 0.84%, with some putting two and two together and suggesting the US Federal Reserve may unveil plans to start unwinding its stimulus package at its scheduled meeting next week.

This could well just be traders trying to find a concrete explanation for the day's sell-off, of course.

Updated at 2.48pm BST

2.37pm BST

It's early days, but Süddeutsche Zeitung's Ulrich Schaefer reckons that the German Constitutional will not impose new restrictions on the OMT programme:

Still all to play for though, with the Bundesbank's Jens Weidmann still to outline his concerns. (and with that, I'm handing over to my colleague Nick Fletcher….)

2.19pm BST

The German court should be back at work, after a lunch break, according to the FT's Michael Steen who's at Karlsruhe.

Updated at 2.38pm BST

2.18pm BST

Is the ECB hiding something?

Back to the court hearing in Karlsruhe. Jorg Asmussen's statement that the ECB hasn't seen the need to publish the legal framework for OMT (see 12.49pm) has caused some concern.

OpenEurope, the think tank, asks whether the ECB is being deliberately obstructive, commenting:

It does beg the question: what are they trying to hide? Maybe nothing, but at the very least it seems they are trying to have the best of both worlds.

By refusing to reveal the exact terms and conditions, the ECB can try to address German concerns over the extent of the OMT (as we have seen them doing in the run up to this case) while also being able to continuously reassure markets that the scheme is in fact "unlimited".

Such a balancing act is tough to pull off and may add to confusion if it breaks down.

(that's from their own coverage of the court hearing)

Asmussen assured the judges that the ECB would publish the legal framework before admitting a country to the programme. However, that suggests that the OMT framework might be released just as a eurozone country dashes for the protection of the ECB, as it loses the confidence of the markets. Not ideal….

2.17pm BST

South Africa is feeling the force of today's sell-off. The Rand has fallen by 1% to a four-year low against the US dollar, and shares are also lower, as Steve Collins of London & Capital Asset Management flags up:

1.56pm BST

Central bank fears send shares and bonds falling

Traders work at their desks in front of the DAX board at the Frankfurt stock exchange June 11, 2013.
Traders at the Frankfurt stock exchange today. Photograph: STRINGER/GERMANY/REUTERS

There's a lot of pretty wild moves in the financial markets today. Europe's stock markets are hitting new lows, with the FTSE 100 now down 100 points (-1.55%) and deeper losses in Spain and Italy, both down over 2.5%.

Southern European government debt also continues to be pummelled, driving up Spain, Italy, Portugal and Greece's bond yields through the trading session (details below)

And in the currency markets the yen has surged by 2% against the US dollar — seemingly as traders seek a safe haven for their money (Dow Jones's Katie Martin explains why here). That's raising new fears that Japan's stimulus package will unravel because Abenomics depends, in part, on a weaker currency helping exports.

So what's going on? It's a confusing picture, but traders keep pointing to concerns that the world's central banks will ease their monetary stimulus packages soon.

The Bank of Japan's decision early this morning to leave policy unchanged, and raise its economic forecasts, makes the City suspect that the days of ultra-loose monetary policy could be numbered.

So, investors are pulling money out of riskier assets, with emerging markets feeling the full force of the sell-off.

The German court hearing (highlights from 10.28am) is also casting a shadow over the markets, even though a verdict isn't expected for several weeks, and the Judges are unlikely to block OMT.

Brenda Kelly, senior market strategist at IG, explains:

Despite the continued aggressive monetary easing from the Bank of Japan, the failure to adapt additional stimulus measures to help ease volatility in debt markets has caused European markets fall into the red in early trade.

In Europe, the two-day court hearing in Germany’s constitutional court is catching the attention of all market participants. Adding to the uncertainty, the legitimacy of the ECB president’s Outright Monetary Transactions programme is being called into question, given that Mr Draghi has been credited with saving the day and helping to drive down peripheral bond yields with his now famous ‘everything it takes’ statement. The fear that German support for the ECB could waver is also serving to unwind much of the confidence and is contributing to the risk-off mode.

The selloff is particularly stark in Greece, where the main index has tumbled 5%. There's clear alarm over its privatisation programme, despite prime minister Samaras's attempt to calm the situation today (see 12.12pm).

Stock market prices, 1.30pm June 11
Stock market prices, 1.30pm today. Photograph: /Thomson Reuters

And here's the key bond yields:

• Greek 10-year bond yield: 10.64%, up 104 basis points (1.04%)

• Portuguese 10-year bond yield: 6.67%, up 42 basis points

• Spanish 10-year bond yield: 4.76%, up 17 basis points

• Italian 10-year bond yield: 4.46%, up 18 basis points

But it's not just 'peripheral' debt that's been hit. UK, US and German bonds are also falling in value, pushing up their yields and contributing to the sense of unease.

As Miller Tabak, the Wall Street firm, warned clients this morning:

Stocks across [Europe] are taking a shellacking to the tune of around 2% as rising German bund yields prompt accelerated losses for government bonds around the periphery

Yields on Spanish and Italian debt are rising to the highest in six weeks. The loss of last week’s lows for equity markets is all too much to bear in most cases and the resilient tone appears to have been snapped like a twig.

Via Business Insider.

Viktor Nossek, head of research at Boost ETP, told Reuters that investors were also taking profits as the summer lull looms.

Over on Wall Street, traders expect the Dow to fall when trading begins at 2.30pm BST.

1.05pm BST

Photos: the German court hearing

A few photos from today's Constitutional Court hearing have arrived:

The President of the German Constitutional Court (Bundesverfassungsgericht) Andreas Vosskuhle (5th L) with other judges of the second senate opens a hearing at the court in Karlsruhe, June 11, 2013.
The President of the German Constitutional Court Andreas Vosskuhle (5th left) opening today’s hearing. Photograph: RALF STOCKHOFF/REUTERS

Here's a snap of the two Germans who are taking opposing sides at the hearing:

Bundesbank chief Jens Weidmann and ECB Board member Joerg Asmussen (R) wait for the start of the hearing at the Constitutional Court in Karlsruhe, June 11, 2013.
Bundesbank chief Jens Weidmann (left) and ECB Board member Jörg Asmussen (right) waiting for the hearing to begin. Photograph: POOL/REUTERS
ECB Board member Joerg Asmussen looks out from a window before the start of the hearing at the Constitutional Court in Karlsruhe, June 11, 2013.
Jörg Asmussen looks out from a window before the start of the hearing. Photograph: RALF STOCKHOFF/REUTERS

Updated at 1.05pm BST

12.50pm BST

Asmussen added that the ECB could agree on making bond purchases under OMT "very quickly", if a country asked for help.

12.49pm BST

Asmussen takes the stand

Jörg Asmussen, Germany's representative on the European Central Bank's governing council, is now giving evidence to the German constitutional court in Karlsruhe.

Asmussen is telling judges that the ECB hasn't yet seen the need to publish the legal text surrounding OMT, but would certainly do so before allowing any country to join the programme.

The legal framework behind OMT is something of a mystery. A few months back, Mario Draghi revealed that it was still a work in progress. Last week, though, he suggested it was all-but ready for publication.

12.12pm BST

Greek Prime Minister Antonis Samaras (R) and Luxembourg's Prime Minister Jean-Claude Juncker (L) address journalists during a joint press conference in Athens.
Greek Prime Minister Antonis Samaras (right) and Luxembourg’s prime minister Jean-Claude Juncker at a joint press conference in Athens today. Photograph: ORESTIS PANAGIOTOU/EPA

Over in Greece, prime minister Antonis Samaras has promised that his government will not bring in additional austerity measures following the shock collapse of the privatisation of gas company DEPA yesterday.

At a press conference with former eurogroup president and curent Luxembourg PM Jean-Claude Juncker, Samaras said that Greece's plans for asset sales remain on track.

New cutbacks will not be needed to cover the loss of revenue from DEPA, Samaras pledged, saying:

The plans for privatizations will continue. Whatever problems arise will be overcome.

Claims that new measures will be required are absurdities.

Intruigingly, Samaras blamed the collapse fo the deal on reasons "beyond" Greece. Insiders have suggested that Russia's Gazprom walked way because it believed the European Union would not allow it to buy DEPA.

The issue was also raised in Brussels at the European Commission's midday press briefing, where spokesman Simon O'Connor said the EC wants Greece to put DEPA back on the auction block quickly.

The outcome of the privatisation process of the gas sector in Greece is very important from the point of view of revenues and the impact on the reform of the energy sector.

In this context the privatisation of DEPA should resume as soon as possible…The design and execution of the privatisation programme is the responsibility of the Greek authorities.

More details here

Meanwhile, Greece's Kathimerini flags up that Juncker is to receive Greece's highest honor, the Grand Cross of Order of the Redeemer.

Samaras even referred to him as “one of us” as he completed his two-day visit to Athens. Juncker chaired the eurogroup of euro finance ministers until the end of last year, during which time Greece received two bailouts.

11.44am BST

The legal challenge to the ECB's bond-buying programme has been brought by a group of Germans, including conservative lawmaker Peter Gauweiler, a team of professors, a citizens organization and Germany's Left Party.

They all argue that OMT is illegal because under German law only the national parliament can decide how taxpayer money is spent. This is rejected by the ECB, which is represented by Jorg Asmussen.

His fellow German, Bundesbank president Jens Weidmann, will explain its concerns. Both men are expected to give evidence later today….

11.32am BST

Wolfgang Schäuble went on to tell German's top judges court that they should respect the independence of the European Central bank:

11.07am BST

Schäuble defends ECB

Germany's finance minister Wolfgang Schäuble has defended the ECB's bond-buying programme as the German constitutional court's eagerly awaited hearing got into full swing.

Schäuble told judges in Karlsruhe that he is confident that the ECB is acting within its mandate by offering to buy "unlimited" quantities of peripheral bonds from countries who also agree to a reform programme.

He said:

The German government sees no signs that the measures taken by the ECB so far violate its mandate.

Schäuble also warned judges that rejection of the OMT could lead to Germany leaving the eurozone, with "unforeseeable' consequences. He also said he didn't believe the ECB's measures fell within the remit of the German courts.

However, as the FT's Michael Steen flags up, Schäuble did add one reservation – as OMT hasn't actually been deployed yet, so he's only working off Mario Draghi's statements.

Schäuble's support is significant, as the German Bundesbank is one of the parties arguing against the OMT. Its head, Jens Weidmann, believes the programme is tantamount to the financing of governments by the central bank.

Updated at 11.55am BST

11.03am BST

UK factory revival stumbles, says ONS

In the UK, the latest industrial production data has shown that Britain's manufacturing revival stumbled in April.

Factory output fell by 0.2% during the month, the first decline in three months.

It dents hopes that industrial growth will help rebalance the UK economy, explains our economics editor Larry Elliott:

The ONS said falls in transport equipment, wood and paper products and metals were the main factors behind the monthly drop but added that in the three months to April – a better guide to the underlying trend – output was 0.5% higher than in the three months ending in January 2013.

Industrial output, which also includes energy use, rose slightly. Here's Larry's full story: UK manufacturing revival halts in April

10.46am BST

Angela Merkel, the German chancellor, has offered support to the ECB this morning over the Constitutional Court hearing:

10.28am BST

German court begins case into OMT

The German Constitutional Court has begun its hearing into the European Central Bank's government bond-buying programme, over in Karlsruhe.

Constitutional Court president Andreas Vosskuhle kicked proceedings off by explaining that he and his fellow judges would not be swayed by the positive impact that that Outright Monetary Transaction (OMT) programme had on the financial markets.

In his opening statement, Vosskuhle said the Court would simply consider the legality of OMT: 

It plays no role in the assessment of the constitutionality of the legal rules and measures that are being looked at whether they were successful in the broadest sense.

The Bundesbank, which brought the case, claims OMT breaks German law by financing other European states, a charge the ECB denies.

10.02am BST

Finland slashes growth forecasts as eurocrisis hits

Gloom from Finland this morning, where the central bank has slashed its growth forecasts for this year.

The Bank of Finland now predicts its economy will shrink by 0.8% this year, having previously expected growth of 0.4%. It also more than halved its 2014 growth forecast, to 0.7% from 1.5%, as the eurozone recession hits Finnish companies hard.

Bank of Finland Governor Erkki Liikanen said Europe's downturm made it harder for Finland's economy to rebalance:

The Finnish economy has faced two major changes at the same time: the restructuring of (its)… industry and the recession in the wake of the financial crisis.

The BoF's warning comes after Finland officially fell into recession, having suffered a 0.1% drop in GDP in the first three months of 2013.

It said the debt crisis was calmer than last year, but had not been eliminated (echoing Switzerland's own warning this morning – see 8.16am):

The risk of a renewed exacerbation of the (international) financial and debt crisis has not disappeared, but the probability is less.

Liikanen warned that "the outlook for the immediate years ahead remains poor", as Finland's economy isn't competitive enough. Public debt levels are rising and the situation will deteriorate without tax rises or spending cuts.

Finnish GDP forecasts
The Bank of Finland’s new forecasts

Finland's economy isn't expected to return to its pre-crisis size by 2015, and Liikanen's message was blunt -

With exports fading, overall demand has been reliant on domestic demand, particularly with household consumption rising.

With income development across the economy as a whole weak due to the problems with exports, domestic demand has increasingly been funded with debt: both household and general government expenditure have been higher than income.

The current account has gone into deficit, meaning the entire
economy is accumulating net debt.

This despite Finland being the only member of the eurozone that is still rated AAA/stable by the three largest rating agencies.

Updated at 10.12am BST

9.42am BST

This chart, from Norwegian trader Financial Acrobat suggests fund managers became rather more jittery about holding high yield (ie riskier) assets towards the end of last month:

9.24am BST

Greek and Portuguese bonds wilt

The sell-off in peripheral debt has hit Greek and Portuguese government bonds hard this morning, driving up their yields (the effective interest rate on the debt). 

Spanish and Italian bonds are also down.

Here's the damage:

• Greek 10-year bond yield: 10.35%, up 75 basis points (0.75%)

• Portuguese 10-year bond yield: 6.6%, up 37 basis points

• Spanish 10-year bond yield: 4.67%, up 8 basis points

• Italian 10-year bond yield: 4.34%, up 6 basis points

Traders are mainly blaming fears that the days of ultra-loose monetary policy may be over, especially those who had hoped for yet more easing from the Bank of Japan.

Mike van Dulken, head of research at Accendo Markets, explained:

Japan’s BoJ was the overnight disappointment, electing to sit on its hands rather than expand intervention as markets had been hoping.

9.02am BST

Markets fall

Stock markets, June 11 early trading
World stock markets, in early trading in Europe. Photograph: Thomson Reuters

There's a gloomy mood in the financial markets this morning as shares and bonds both fall.

The main European indices are all in the red this morning, following a 1.45% drop on the Japan's Nikkei overnight after the Bank of Japan left monetary policy unchanged. There's also a big selloff in eurozone peripheral debt.

A few factors are being blamed – including this morning's clashes in Turkey (where riot police moved in to clear Taksim Square), and the German court hearing.

But as Jeremy Cook of World First explains, the "ongoing deterioration" in the emerging markets is the main theme.

Emerging market debt has been a great investment through the beginning of the year, and was set to remain so as long as the global glut of cheap money continued from the world’s central banks.

However, the past few weeks have seen investors become concerned that the Fed will ‘taper’ their asset purchase plan soon, the Bank of Japan may have already failed in its attempt to support the Japanese economy and the ECB’s ‘whatever it takes’ mentality has fallen by the wayside.

Bond yields to follow

8.40am BST

German court puts OMT on trial

The President of the German Constitutional Court (Bundesverfassungsgericht ) Andreas Vosskuhle (4th R) with the other judges of the second senate as he announces a ruling at the court in Karlsruhe September 12, 2012.
The German Constitutional Court, last September. Photograph: KAI PFAFFENBACH/REUTERS

The German constitutional court will start its hearing on the legality of the European Central bank's bond buying programme at 11am local time (10am BST).

It pits the Bundesbank against the ECB, and thus Germany's top central banker, Jens Weidmann, against the country's man at the ECB, Jörg Asmussen.

At issue, whether Mario Draghi's pledge to buy unlimited amounts of bonds issued by a eurozone country that signs up for stringent economic reforms is legal.

Ian Traynor, our Europe editor, has explained the issues here: German court considers legality of ECB intervention policy:

It is not clear what the German court, which is not expected to rule finally on the dispute until after general elections in September, can do to stop the ECB as it does not have jurisdiction over the non-German institution.

Although it is not viewed as likely, the court would be able to tie the hands of the German government and the Bundesbank or curb its involvement in the ECB policy. Or it could send the dispute to the European court of justice.

The promise of OMT has helped to push down Italy and Spain's borrowing costs – even without a single bond being bought (as Draghi proudly declared at last week's ECB press conference). So the court's decision really matters.

As Stan Shamu of IG put it:

It is important for the OMT backstop to remain available in order to keep confidence steady.

8.16am BST

Swiss: social tensions could fuel euro crisis

Good morning, and welcome to our rolling coverage of the latest developments across the eurozone and the global economy.

First up: the Swiss government has warned that the eurozone recession remains the biggest single threat to its economy, in its latest assessment of its economy.

Economists at the State Secretariat for Economics (SECO) pointed to the "profound economic and structural problems of the euro area", cautioning:

The largest economic risk is still the debt crisis in the euro area…

The weak euro zone economy continues to act a brake on the global economy.

While they conceded that progress had been made in recent months, the Swiss clearly don't share Francois Hollande's upbeat assessment that the eurozone crisis is over.

SECO argues that Europe's financial crisis "cannot be regarded as addressed" because countries in southern Europe are still "relatively far from a significant economic improvement".

SECO also pointed to the risk that "growing social tensions and political disagreement" could inflame the debt crisis again and spark another panic in the financial markets. This could put also fresh upward pressure on the Swiss Franc – which is currently pegged against the euro to prevent it rising too high.

Despite Europe's woes, the Swiss government is pinning its hopes on exports to North America and Asia. SOCA raised its growth forecasts for this year to 1.4%, from 1.3% – while predicting the eurozone will shrink by 0.7%.

SOCA's full statement is here.

What else is coming up today? The main event will probably be the start of the German constitutional court's two-day hearing into the legality of the ECB's new bond-buying programme, the Outright Monetary Transaction scheme.

The Court may not issue a ruling until the autumn, and will probably give its approval to OMT (although may add conditions). Still, we'll be watching events in Karlsruhe, along with other developments though the day as usual…..

Updated at 8.20am BST

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Europe ‘rethinking transaction tax’. Firms more optimistic, EC survey finds. Shares slide in Japan. Spanish economy shrank 2% over last year. US economic growth for the first three months has been revised down slightly, to 2.4% on an annualised basis…


Powered by Guardian.co.ukThis article titled “Japan’s Nikkei tumbles 5%; French jobless total hits new high – as it happened” was written by Graeme Wearden, for theguardian.com on Thursday 30th May 2013 15.28 UTC

7.11pm BST

Closing summary

Time to knock things on the head for another day.

Here's a closing summary:

Japan's Nikkei took another tumble, falling by over 5% as the Tokyo exchange was gripped by another bout of selling. Ministers insisted there was no need for panic, but the drop highlighted concerns that the country's new economic stimulus package may not be working. Highlights from 7.43am onwards.

The French jobless total has hit a new record high, piling more pressure on the Paris government. There are now 3.26m people officially out of work in France, after the total jumped by almost 40,000 in April (see 5.06pm and 6.16pm for details).

Angela Merkel urged France to implement the reforms requested by the European Commission in return for the deficit deadline extension granted yesterday. The comments came at a press conference with Francois Hollande (highlights from 5.37pm).

There was a welcome increase in eurozone economic sentiment. Figures released by the European Commission suggested firms are more optimistic about the crisis, which may increase chances of the recession ending soon (details from 10.09am).

Anger against Europe's financial crisis was on display. There was a general strike in the Basque region of Spain (see here), and a 24-hour walkout on the Lisbon subway (see here).

Europe appears to back away from implementing a financial transaction tax. According to Reuters, officials are working on a watered-down proposals which could costs banks much less (see 1.38pm). Campaigners haven't given up the fight (see 3.38pm).

New economic data from the US showed a rise in the number of people signing on for jobless benefit. Economic growth for the first three months of 2013 was revised down, a little bit. Less chance of the Federal Reserve ending quantitative easing soon? (see 2.05pm).

And John Bon Jovi has revealed he has waived his fee for playing in Spain. Details here.

I'll be back tomorrow. Thanks, as ever, for reading and commenting. Goodnight. GW

Updated at 7.18pm BST

6.38pm BST

Markets calm after Japanese storm

The financial markets remain unspooked by the overnight tumble on the Nikkei.

The main European markets closed higher (only Spain finished narrowly in the red), and on Wall Street the Dow Jones and S&P 500 are both up around 0.5%.

Stock markets closing prices, May 30 2013
Stock markets closing/latest prices. Photograph: /Thomson Reuters

6.28pm BST

The Open Europe thinktank was also watching the press conference, and flags up:

Updated at 6.28pm BST

6.19pm BST

Merkel tells France to reform

Angela Merkel also reminded Francois Hollande that, for all his talk of national sovereignty, he needs to get the French deficit below 3% of GDP.

She told reporters:

We agreed to give France two more years to cut its deficit to 3.0 percent … and coupled with that is the expectation that reforms will be implemented. These go hand in hand.

And that's the end of the press conference (highlights from 5.37pm)

6.16pm BST

A reminder of the jobless crisis in France — there are now more than 3.26 million people officially out of work, after the total rose by almost 40,000, or 1.2%, in April.

There are now 12.5% more jobseekers than in April 2012.

This is a record, according to data which goes back to 1996. The previous record was set in 1997 and broken in March 2013.

6.10pm BST

Here's Hollande's pledge to reverse France's growing jobless total:

Despite this data, despite what it means for many French people individually or for their family, I maintain the goal of reversing the unemployment trend by year-end.

6.03pm BST

Hollande: We will reverse rising unemployment

Francois Hollande says he is committed to "reversing" France's unemployment trend by the end of this year, just an hour after new data showed the jobless total has hit a new high (see 5.06pm).

Asked about the issue, Angela Merkel says that Germany's relatively good jobless rate is due to the "flexibility" of its labour markets (including no minimum wage, as our Europe editor Ian Traynor flagged up here).

5.59pm BST

Francois Hollande has reiterated that France cannot be ordered around by Brussels, a point he made last night after the European Commission released its latest country recommendations.

Asked how this squares with his support for closer economic governance in the eurozone, Hollande explained that the EC gives recommendations, but does not tell states what they must do.

The methods….are the responsibility of France, Hollande told this evening's press conference.

Adding:

The details and procedures…are the responsibility of the government and the state, otherwise there would be no possibility of sovereignty. The Sovereignty must be in the implementation.

(quote via Reuters' Paris bureau, which I've translated)

5.56pm BST

Also.. what would a new, full-time president of the eurogroup mean for Jeroen Dijsselbloem, the Dutch finance minister who took the job at the start of 2013?

Dijsselbloem got off to a shaky start with the bungled Cyprus bailout (for which he took responsibility, although few officials/leaders involved came out of it well). He then caused alarm by indicating that the Cypriot banking levy on wealthy depositors could be a model for the future (and indeed the eurozone is moving towards a bailing-in model for large creditors).

Is he now being shunted aside?

5.44pm BST

France and Germany both back the idea of having a full-time president of the Eurogroup of euro zone finance ministers, President Francois Hollande told the press conference:

On the organisation of economic governance, we are both in agreement that there should be more euro zone summits with a full-time Eurogroup president with reinforced powers who could also be given the mandate, by euro zone ministers, to push for action on employment in industry and research.

More summits, eh? What larks

Updated at 5.47pm BST

5.37pm BST

Merkel-Hollande press conference underway

Angela Merkel and Francois Hollande
Angela Merkel and Francois Hollande Photograph: /N24

German chancellor Angela Merkel and French president Francois Hollande are holding their press conference now (livestream here).

The two leaders appear to be putting on a show of unity, following recent tensions between Europe's two largest countries.

Hollande has told reporters that France and Germany both want funding to be dispensed quickly by Brussels to finance new employment initiatives.

Merkel has said she wants the Growth and Employment pact agreed last summer to be implemented quickly, alongside closer 'economic co-ordination' to improve competitiveness and tackle imbalances in the eurozone.

More to follow

5.06pm BST

French unemployment hits new record high

It's official, the French unemployment crisis has worsened with another 39,800 people registered as jobless in April.

That takes the total out of work to work to 3,264, the highest level since records began in 1996.

Reuters flags up that this is the 53rd month out of 61 in which the jobless total has risen.

4.59pm BST

Photos: Basque general strike

Thousands of people have taken part in a general strike in the Basque area of Spain today, in protest at austerity measures being implemented by national and regional governments.

It was called by the two main Basque unions. There are reports of isolated clashes between protesters and riot police. The ANSA news agency says that eight people were arrested in Pamplona.

These photos show it was well-attended:

Thousands of people take part in a protest during a 24-hour general strike called by the major Basque unions in protest against the spending cuts approved by the Spanish and Basque governments, in San Sebastian, the Basque Country, Spain, 30 May 2013.
Thousands of people take part in a protest in San Sebastian, the Basque Country, Spain, 30 May 2013. Photograph: Javier Etxezarreta/EPA
A demonstrator holds a flag reading in Basque language, 'General Strike, May 30',  during the general strike in  Pamplona, northern Spain on Thursday, May 30, 2013.
A demonstrator holds a flag reading in Basque language, ‘General Strike, May 30′, during the general strike in Pamplona. Photograph: Alvaro Barrientos/AP
-- A man walks next to the Banco Sabadell, with graffiti: Today all the streets to fight and thieves.
A man walks next to the Banco Sabadell, with graffiti that reads: “Today all the streets to fight and thieves”. Photograph: Javi Julio/Demotix/Corbis
Members of union picket lines protest with Basque policemen at the entrance of a shopping mall during a regional strike called by the main Basque unions in the northern Spanish Basque city of Bilbao, on May 30, 2013.
Members of union picket lines protest in front of Basque policemen at the entrance of a shopping mall in the northern Spanish Basque city of Bilbao today. Photograph: RAFA RIVAS/AFP/Getty Images

4.50pm BST

Heads-up: Angela Merkel and Francois Hollande are holding a joint press-conference shortly. It'll be streamed here.

Updated at 4.53pm BST

4.28pm BST

The view from Athens

Over in Greece our correspondent Helena Smith reports that the jobs figures keep getting worse:

In what must be one of the most dispiriting set of figures released since the start of the euro crisis, a poll commissioned by Athens University shows that Greeks are not only not buying into the official optimism the coalition government has made a point of drumming home but are fast falling into deep despair.

Three out of ten Greeks (29.9%) are actually in paid, permanent work at present*, according to Opinion Poll which conducted the survey with one out of two Greeks saying their desire is to work abroad.

* – rather than, say, studying or in temporary work, or between jobs….

With the official unemployment rate now at a euro zone record of 27%, those who do have jobs are not hopeful either with six out of ten telling pollsters they fear they won’t have work for long. A whopping 85.39% said they were vehemently opposed to the policies being pursued by Europe with 70.76% saying they did not think the European Union would resolve the crisis in the next two years. In another sign of bleakness, the vast majority blamed the unprecedented levels of joblessness, especially among the young who have been hardest hit, on immigrants. 

The poll was released as Greece’s finance minister, Yannis Stournaras, rejected an OECD forecast that Greece was headed for a seventh year of recession.

The Paris-based organization predicted yesteday that the Greek economy would contract by 4.8 percent this year and 1.2 percent in 2014. “We disagree with that figure,” said Stournaras. The European Commission and the International Monetary Fund also disagree with it. I believe this will be proven wrong and we will be right, as I believe that the GDP will be just under plus 1 percent,” he told reporters in Paris. 

In line with sentiment on the ground, the OECD forecast that unemployment would also rise next year to 28.4%. Ever the eternal optimist, Stounaras added that Athens would proceed with its first, if small, bond issue next year.

Updated at 7.16pm BST

3.59pm BST

There's a rumour swirling that the French unemployment data has leaked, and that the figures are another dose of bad news for president Hollande.

Les Echos, the French news paper, is reporting that the number of registered jobseekers rose by about 40,000 in April, on top of March's record high. Here's their story.

We'll find out at 5pm….

3.38pm BST

Robin Hood campaign: we need the FTT

Campaigners for a Financial Transaction Tax have responded to today's reports that Europe is rowing back on its plans to impose the levy.

David Hillman, spokesperson for the Robin Hood Tax campaign, said he was hopeful that the FTT would not be scaled back:

It is true that countries are debating the details of the tax but our understanding is there remains a firm intention to agree a strong FTT that will be popular with the public and raise tens of billions from the banking industry.

That is why the banks are lobbying so hard – precisely because they know they will soon be paying it. And if the FTT works well in Europe, it will be harder for them to argue against paying their fair share here.

This tax must be implemented in full – it's time the special privilege of the financial sector, which has cost the rest of society so dear, is brought to an end.

As reported at 1.38pm, officials have told Reuters that the FTT could be watered down to just 0.01% of a trade's value, from a previous plan of 0.1%. The rethink, following lobbying and legal action, could also see the tax only imposed on shares at first.

3.27pm BST

Falling Irish unemployment welcomed

The news that Ireland's unemployment rate has fallen to 13.7% (see 11.11am) is being hailed as a chink of light for the country's economy, reports Henry McDonald in Dublin:

He writes:

One of the two ruling parties in the Dublin coalition, Fine Gael, has claimed the drop in unemployment showed that the government's strategy of generating jobs is bearing fruit.

Fine Gael TD Damien English welcomed the CSO figures which report the first drop in Irish unemployment in three years.

He said: “Taking a closer look at today’s figures from the CSO reveals some encouraging trends. Not only has unemployment dipped below 14% for the first time in three years, we are also making progress in tackling the long-term unemployment rate, which has remained stubbornly high.

“About two-thirds of those who are out of work are long-term unemployed, and helping these people re-enter the workforce is crucial if we want to get on top of this crippling problem. The long-term unemployment rate has fallen by almost 1% over the last year. Of course, it remains far too high, but it is encouraging that we are moving in the right direction.

2.59pm BST

Heads-up: Dutch finance minister Jeroen Dijsselbloem, who also chairs the eurogroup, is visiting Greece tomorrow.

Dijsselbloem will hold talks with his Greek counterpart, Yannis Stournaras, from 3pm local time (1pm BST), followed by a press conference.

Suspect we'll hear more about how Greece is fighting its way through the crisis (today's rise in economic sentiment could be cited).

If so, we shouldn't forget that unemployment is at record high, and the economy's shrunk by around 20% since the ongoing recession started.

2.46pm BST

Wall Street opens

After the drama of Tokyo, we have torpor on Wall Street where the Dow Jones has risen by a paltry 0.1% in early trading, matching the FTSE 100.

Things are a little brighter in Europe, with the German DAX and French CAC both up around 0.5%. Pretty calm, though, after the Nikkei's decline.

Updated at 2.46pm BST

2.29pm BST

The small downward revision to US GDP is nothing to worry about, argues Paul Ashworth, chief US economist at Capital Economics.

He points out that drop was partly due to larger drop in government spending (knocking 1% off GDP, not 0.8%)

The fiscal squeeze will continue for the rest of this year, but should begin to ease off after that.

He adds that the private sector appears to be doing well:

Consumption growth is now estimated to have accelerated to 3.4% annualised in the first quarter, up from the initial estimate of a 3.2% gain. This is even more impressive given the expiry of the payroll tax cut at the end of last year. Real personal disposable incomes are now estimated to have fallen by a massive 8.4% in the first quarter, reversing an 8.9% jump in the final quarter of last year, which reflected a surge in bonuses and dividends paid earlier to avoid those higher taxes.

As a result, the saving rate slumped to only 2.3%. Otherwise, the positive contribution to first quarter GDP growth from inventories was lowered, while the drag from net external trade was also assumed to be smaller. These two changes largely offset each other.

This graph from Zerohedge shows the details (first estimate on the left, and today's final reading on the right)

US GDP Q1 2013, revised
.
US GDP code
Photograph: Zerohedge

2.05pm BST

US data disappoints

Two pieces of weaker-than-expected US data have been released, suggesting America's economy may not be as vibrant as thought.

1) The weekly jobless claims data showed that 354,000 people signed on for unemployment benefit for the first time last week, up from 344,00 the previous seven days.

The number of people filing 'continued claims' also rose, to 2.986m, having dropped below the three million mark last week for the time since March 2008.

2) US economic growth for the first three months has been revised down slightly, to 2.4% on an annualised basis (ie, 0.6% quarter-on-quarter), from 2.5%.

The figures are surprising, given how much American data has beaten forecasts in recent days (consumer confidence, house prices and manufacturing output have all been more decent than expected)

That may mean the Federal Reserve doesn't begin slowing, or 'tapering', its electronic money-printing operation soon, suggests Mike van Dulken of Accendo Markets:

Updated at 2.08pm BST

1.38pm BST

Europe to ‘scale back Financial Transaction Tax’

The City of London.
The City of London. Photograph: Grant Smith/Alamy

Reuters is reporting that European officials are planning to scale back their proposed financial transactions tax drastically, following lobbying from the banking sector and a legal challenge from the UK.

Under the new proposal, the FTT would be rolled out more slowly, and would only raise one-tenth as much as previously expected.

The changes on the table, which aren't yet agreed, would cut the levy on transactions to just 0.01% of the value of a deal, from 0.1%.

Officials are also planning to simply impose the charge on shares, initially, and only extend it to other products such as derivatives once they've established the impact of the FTT.

One official explained:

The whole thing will have to be changed quite a lot…

It is not going to survive in its current form.

adding:

You can introduce it on a staggered basis.

We start with the lowest rate of tax and increase it bit by bit.

The full story is here: Exclusive – Europe plans major scaling back of financial trading tax

Brussels had hoped that the FTT would raise significant funds to fix some of the damage cause by the financial crisis.

It was based on work by economist James Tobin in the 1970s. He famously spoke of throwing sand into the wheels of the financial system, making short-term trading less lucrative while having little impact on buy-and-hold investing.

It was picked up by the Robin Hood movement, who hoped to use it to raise funds for development work, before Brussels saw how they, too, could implement it. In January, 11 countries agreed to bring it in.

But it was very unpopular with the City. Even though the UK isn't implementing the FTT, it would hit firms when they traded with European banks.

The British government launched a legal challenge to the plan in April. And last week the Bank of England governor, Sir Mervyn King, attacked the FTT and claimed that he couldn't find anyone in the world of European central banks who supported the idea.

Of course, nothing is official yet, as Reuters explains:

Any final decision is up to the countries that have signed up and remains months away. 

Germany, for example, is unlikely to back any scaling down of the levy in public before elections in September, because Chancellor Angela Merkel's coalition has committed itself to the voter-friendly tax.

1.05pm BST

Meanwhile, back in Japan…

A report that Japan's public pension fund may pile more funds into the stock market has sparked a wild swing in the futures market.

Hours after today's 5% slide (see opening post onwards), Reuters reported that the Government Pension Investment Fund (GPIF), which manages some trn, is considering changing its potential risk and return rules on assets to give it more flexibility.

Otherwise, the report claims, GPIF might have to buy more Japanese bonds and sell shares.

It's attributed to an unnamed source, who reckons the move could be anounced within a month, and it's enough to send traders pushing up the Nikkei futures price. That now suggests the index could jump by 400 points tomorrow morning, having lost 737 today.

Nikkei futures price, May 30th
Photograph: InFront (with thanks to @finansakrobat )

It's also pushing shares up in London, with the FTSE 100 up 25 points now at 6651.

Updated at 1.05pm BST

12.15pm BST

Subway workers strike in Lisbon


A woman reads a sign saying: “The subway is closed due to the strike”. Photograph: Francisco Seco/AP

Subway staff in Lisbon are holding a 24-hour walkout in protest at the country's austerity programme, causing traffic snarl-ups in the Portuguese capital.

The strike was organised by unions to show their opposition to welfare cutbacks, and labour market reforms, which are part of Portugal's €78bn bailout deal.

The Metropolitano de Lisboa, which normally carries half-million passengers a day, is at a stand-still, according to the Portugal News. The disruption began late on Wednesday and is expected to continue until Friday morning.

Union leader Anabela Carvalheira told the Lusa news agency that the numbers of strikers “is good”, adding:

So far there are no workers on the trains, in the stations or at the workshops.

Commuters queue for a bus during a 24-hour subway workers strike, Lisbon, Thursday, May 30, 2013.
Commuters queue for a bus during a 24-hour subway workers strike. Photograph: Francisco Seco/AP

AP has more details about the strike.

The protest comes ahead of a spate of strikes by government workers and employees of public companies in coming weeks, including a planned walkout by teachers during the period of high-school summer exams.
The country's two trade union confederations, representing more than 1 million mostly blue-collar workers, are also considering rare joint protests.

Commuters walk along Comercio square during a 24-hour subway workers strike, Lisbon, Thursday, May 30, 2013.
Commuters walk along Comercio square in Lisbon today. Photograph: Francisco Seco/AP

11.19am BST

Today's fall in Irish unemployment was due to a 24,200 rise in the number of people in part-time employment unemployment. The total in full-time work fell, though, by 3,700.

Updated at 4.41pm BST

11.11am BST

Irish unemployment data released

Ireland's unemployment rate has fallen this year, but remains painfully high, data just released shows.

The seasonally-adjusted jobless rate dropped to 13.7% in the first quarter of 2013, down from 14.1% in the last three months of 2012 (Reuters reports).

It's the first time the seasonally-adjusted rate has been below 14% in two years.

This comes a day after the OECD said Ireland must implement "decisive labour-market reforms" to help people, especially the young, into work.

Updated at 11.18am BST

11.07am BST

David Jones of IG Index cautions against over-hyping today's 5% fall on the Nikkei today.

Updated at 11.26am BST

10.57am BST

Howard Archer of IHS Global Insight is also cheered by today's rise in eurozone confidence, but agrees that the situation is still weak:

Following on from modestly improved purchasing managers surveys for May, a limited overall pick up in economic sentiment supports hopes that Eurozone economic activity is inching towards stabilization in the second quarter after contracting for a sixth successive quarter in the first quarter of 2013. However, sentiment is still pretty muted and fragile, and the situation varies markedly between countries. If the Eurozone does finally manage to stop contracting overall in the second quarter, it is likely to be heavily dependent on clear growth in Germany.

If the trend continues, he adds, then firms should pare back their job cutting and consumers could start spending a little more (aided by the fact that inflation in the eurozone has been falling.

10.47am BST

Eurozone confidence rises – early reaction

Eurozone consumer confidence, to May 30 2013
Economic sentiment in the eurozone and EU. Photograph: European Commission

Hopes that the eurozone could exit recession before Christmas have been bolstered by today's rise in eurozone economic confidence (see 10.03am), suggests Martin van Vliet, economist at ING.

However, the underlying pictures remains troubling – Europe is not out of its economic crisis yet.

Van Vliet explains:

With economic sentiment across the Eurozone starting to turn up again, hopes will be rising that the Eurozone could exit recession in the second half of this year.

But we shouldn’t get overexcited here. With more fiscal austerity in the pipeline – slower austerity still is austerity –, unemployment elevated and still rising and, in some cases, still weakening housing markets, consumers and businesses have plenty of reason to remain worried. So while it is encouraging to see that confidence is again moving in the right direction, there remains a long way before confidence is restored. Any nascent economic recovery later this year is therefore likely to be slow, and will probably be largely confided to the “core” countries.

And today's data also showed an increase in sentiment in Greece, after many dark months:

Updated at 11.00am BST

10.09am BST

Economic outlook may be getting brighter…

Confidence improved across the eurozone's five largest economies – Germany, France, Italy, Spain and the Netherlands – according to the European Commission's new survey (see 10.03am).

Service sector companies and manufacturers both reported that the economic climate has picked up.

• Services sentiment: -9.3, up from -11.1 in April

• Industrial climate: -13.0, up from -13.8 in April

The Commission said that industrial firms were reporting healthier order books, suggesting better economic times in the months ahead.

10.03am BST

Eurozone sentiment improves

Just in: eurozone citizens and businesses are more confident about economic prospects than a month ago.

The European Commission's monthly survey found that economic sentiment has risen to 89.4 this month, up from 88.6 in April.

And consumer confidence is up too, at -21.9 from -22.3. Still deeply into negative territory, though, but it's getting better.

Updated at 10.04am BST

9.59am BST

A special adviser to Japanese PM Abe has apparently said that today's 5% tumble on the Nikkei isn't a cause for alarm, because it's natural for shares to move randomly.

Reuters' Tokyo bureau has the details:

The recent volatility in the Japanese stock market is not surprising as it is natural for stock prices to move randomly, Koichi Hamada, a special economic adviser to Prime Minister Shinzo Abe said on Thursday.

Hamada, speaking to reporters, also said he is not worried about the rise in Japan's long-term yield as real interest rates remain low.

Am not sure that the 'random walk theory' is completely applicable in a situation where a country is attempting an unprecedented stimulus package, at a time of global unease over monetary policy….

9.40am BST

Germany’s eurosceptic leader: I could work with Merkel


Bernd Lucke, co-founder of Germany’s anti-euro party “Alternative fuer Deutschland”. Photograph: KAI PFAFFENBACH/REUTERS

The leader of Germany's new anti-euro party has told Reuters that he could work with Angela Merkel's party following this autumn's elections, as long as she agrees to take a harder line on aid to struggling euro zone members.

The comments may cause some concern in the eurozone periphery, although it's not clear that Alternative For Deutschland will attract enough votes to secure seats in the German parliament.

Bernd Lucke, founder of AfD, told Reuters that he could drop his demand that Germany withdraws from the eurozone, if Merkel agreed to be tougher:

Lucke, a macroeconomics professor, explained:

I could imagine cooperating with a centre-right government if this coalition was prepared to accept significantly tougher conditions on aid from the ESM [the eurozone bailout fund].

In other words, only paying out aid tranches when bailed out countries really fulfil their obligations. At the moment, when a country like Greece or Portugal fails to meet the criteria, they receive aid regardless, because we are told they made a decent effort.

The full interview is online here.

Lucke's comments come at a time when Europe appears to be moving away from hard-line tactics and towards a push for growth. On Monday, Spiegel reported that Merkel's government was ready to "gamble" on new stimulus measures to help Southern Europe (more here)

8.55am BST

Bon Jovi waives fee for Spanish gig

Jon Bon Jovi performs on stage at Munich Olympiastadion on May 18, 2013 in Munich, Germany.
Jon Bon Jovi performing on stage at Munich Olympiastadion earlier this month. Photograph: Stefan M. Prager/Redferns via Getty Images

US rock star Jon Bon Jovi has revealed he is playing a concert in Spain for free next month, meaning cheaper tickets for fans who have suffered from the country's economic trauma.

Bon Jovi told Spanish newspaper El Mundo that he wanted to give something back to Spain, after realising that many citizens wouldn't be able to afford the experience.

He explained:

When we started planning our tour for our album, 'What about now', we did a study and found that, due to the economic situation, Spain wouldn't be on the roadmap

However, we didn't want to ditch the fans of a country I love and has treated me so well for 30 years.

The gig takes place at the Vicente Calderon stadium on 29 June, and is already sold out. Tickets were priced at between €18 and €39, with proceeds going to cover venue costs and staff wages.

A ticket for Bon Jovi's gig in Manchester, next month. will cost you around £95 (€111), (based on a quick search this morning).

The 51-year old musician can take the financial hit, given his estimated net worth of 5m. Still, it's an encouraging response to Europe's woes — given some rock bands had considered touring elsewhere instead for fear of not being paid.

Updated at 9.00am BST

8.34am BST

No panic in Europe's stock markets, where the FTSE 100 is up 10 points in early trading. That's partly because the blue-chip index got its retaliation in first, dropping 2% last night.

David Buik of Cantor Index comments:

This morning we had expected a dead-cat-bounce, but it was not to be thanks to the Nikkei falling 5.15% today thanks to a strong Yen and lower export forecasts.

8.20am BST

Spain’s economy shrank 0.5% in Q1

Over to the eurozone, and confirmation that the Spanish economy continued to shrink steadily this year.

Final GDP data, just released, showed that Spain's economic output dropped by 0.5% in the first three months of 2013, and was 2% smaller than a year ago. That's in line with the initial estimate, and shows the economy has been in recession for the last seven quarters.

It also reinforces the need to give Spain two more years to lower its deficit to 3% of GDP – a decision announced yesterday by the European Commission.

8.09am BST

Economics minister: We aren’t anxious about the markets

Japanese economics minister Akira Amari has insisted that the country's government will not be blown off course by events in the stock market.

Reuters has the details:

Amari said the Bank of Japan is taking appropriate actions to seek stability in the Japanese government bond market through communication with market participants.

Amari, speaking at an international conference held in Tokyo, also said that the government continues to closely monitor the market for its ability to digest JGBs.

He repeated that the government will pursue economic policies without feeling anxiety about the recent volatile movement in stock markets.

Japanese government bonds have risen in value this morning, which lowered the yield (the effective interest rate) on its 10-year debt at 0.89%.

There was alarm this week when this yield hit 1%, as it suggested traders were losing faith in 'Abemonics' and ditching the country's debt. Yields are still up sharply since the start of April:

Updated at 8.11am BST

7.59am BST

Fed fears

Today's 5% slide on the Nikkei is also due to concern that the US Federal Reserve will begin the process of slowing, or 'tapering', its own stimulus package soon.

One hedge fund manager told Reuters that Fed fears are a bigger factor than the rising yen (which is up around 0.5% at ¥100.6 to the US dollar):

The rising yen is just a minor reason that triggered further selling. The fundamental concern that's been in investors' heads is the possibility that the Fed is exiting from quantitative easing.

And here's a list of the biggest fallers in the Nikkei today:

Biggest fallers on the Nikkei, May 30 2013
Photograph: Thomson Reuters

7.43am BST

Japanese stock market falls again

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

Japan's stock market has tumbled again, as fears over the country's stimulus package and the hit shares in Tokyo.

The Nikkei slid by nearly 5.2% in a nervy day's trading, prompting the country's finance minister to urge people not to overreact. All but two of the 225 shares in the benchmark index fell.

The Nikkei lost 737 points to finish at a five-week low of 13,589, meaning it has lost 14% since its 'intraday' peak last Wednesday. This puts the index in 'correction territory' (defined as a drop of 10% or more), although it's still up by a third this year.

Japan's Nikkei, 3 months to May 30
The Nikkei over the last three months. Photograph: Thomson Reuters

Exporters led the selloff, with Fast Retailing – Asia's largest clothes vendor – sliding by 11.11%. The yen rose against the US dollar, raising concerns that Japanese firms will find it harder to sell abroad.

Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments, told Bloomberg:

Selling is feeding into more selling.

It’s mind-boggling that this market, which is one of the most liquid in the world, can move so much in one day like this.

Traders also blamed nervousness over the prospects for the Japanese economy. Economic data due out tomorrow will show whether prime minister Shinzo Abe's stimulus package is succeeding in stimulating growth.

More reaction to follow, along with rolling coverage of other events through the day…..

Updated at 7.50am 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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Published via the Guardian News Feed plugin for WordPress.

IMF’s Lipton: government should be more supportive. Gloom as UK retail sales fall. Bank of England minutes show Governor Mervyn King outvoted again on his call for expansion of the Asset Purchase Program. FTSE 100 index has closed at a new 13-year high, and Germany’s DAX hit its highest ever level…

 


Powered by Guardian.co.ukThis article titled “IMF calls for new growth measures to help UK economy and ease austerity – as it happened” was written by Graeme Wearden, for theguardian.com on Wednesday 22nd May 2013 16.05 UTC

6.44pm BST

The last word today goes to our economics editor, Larry Elliott.

Hit the austerity pause button. Invest more in social housing, schools and road repairs. Growth is more important in the short term than deficit reduction. Couched in suitably polite language, that was the uncomfortable message from the International Monetary Fund to George Osborne today.

The chancellor could take some comfort from the fact that the Fund was rather more diplomatic about his economic strategy than it was in Washington a month ago, but not all that much. For the past couple of weeks, the Government has done its utmost to persuade the IMF that Britain should stick to its current budgetary course. Osborne has tried. The chief secretary Danny Alexander has tried. Sir Mervyn King has tried. They have all failed.

Larry's full analysis will be online tonight.

That's all for today. This post from 2.33pm sums up the key points from the IMF report. Thanks. GW

6.36pm BST

Sky News's Ed Conway makes the case tonight that the IMF's call for the government to adjust its fiscal programme is "arguably…the least interesting part of all".

He writes:

The Fund believes Britain’s banking system remains in some trouble. It believes the Government may have to pump extra cash into the semi-nationalised banks, RBS and Llloyds. These are more intriguing criticisms; ones the Government would be wrong to ignore.

And yet it is “Plan A” and “Plan B” that hog the headlines. One can understand why: the Chancellor made key pledges on the deficit, on which it is far easier to judge him than on the complex world of financial reform. But, in the grand scheme of things, the IMF making vague micro-suggestions about his fiscal plans simply isn’t a rift of the scale some would like it to be.

Updated at 6.36pm BST

6.26pm BST

This might interest regular eurozone watchers — Citi, the investment bank, has dropped its prediction that Greece will leave the eurozone next year.

6.10pm BST

Looking back at the IMF report again. John Van Reenen, director of the Centre for Economic Performance at the LSE, argues that Britain's civil servants have played a blinder over the IMF report:

The Treasury’s spin doctors have been working overtime ever since to say the IMF Article IV was likely to be very critical of the government due to internal politics. Hence when it came out as merely “critical”, the report can be dutifully hailed again as a ringing endorsement of government policy.

Article IVs are almost never directly critical of large countries like the UK, and they are always hedged in careful diplomatic language. Nevertheless the message is clear enough if you can read the runes

And that message, as we've been banging on about since David Lipton's press conference, is more infrastructure spending. Now.

The bottom line is that the IMF is endorsing an increase in public investment spending, as many of us have been pushing for years. The most effective way to address deficient demand would be for the government to directly spend at least £20bn on infrastructure over the next two years, as analysed in studies by the Institute for Fiscal Studies, National Institute for Economic and Social Research and LSE’s Centre for Economic Performance, and the IMF now seem to agree.

I wish the IMF could have been even more critical of the failures of the government’s fiscal plans. They are too willing to accept the argument that “credibility” has been purchased by an excessively front-loaded deficit reduction plan, for example.

But it is clear that the chancellor’s (formerly?) favourite international think tank has signed up to the public investment programme we so sorely need. So perhaps we will finally get some real action.

5.47pm BST

EU leaders agree to speed up battle against tax evasion

The European Council has now released the conclusions of today's meeting in Brussels, which include a new agreement to fight tax evasion.

Here's the key section from the official summary:

Tax fraud and tax evasion limit countries' capacity to raise revenue and carry out their economic policies. In times of tight budgetary constraints, combating tax fraud and tax evasion is more than an issue of tax fairness – it becomes essential for the political and social acceptability of fiscal consolidation.

The European Council agreed to accelerate work in the fight against tax fraud, tax evasion and aggressive tax planning. In particular, work will be taken forward as a matter of priority on promoting and broadening the scope of the automatic exchange of information at all levels. 

5.20pm BST

Stock markets hit new highs

Back in the financial markets, and the FTSE 100 index has closed at a new 13-year high, and Germany's DAX hit its highest ever level.

Ben Bernanke's testimony on Capitol Hill, in which he said it was too early to tighten monetary policy (see 3.28pm) gave the markets another sugar rush.

Markets, May 22 2013
Photograph: Thomson Reuters

5.05pm BST

Down the corridor in Brussels, Angela Merkel has told reporters that EU leaders are determined to stop large companies from paying too little tax in countries where they operate.

Reuters reports:

The European Union will ensure big companies pay more taxes in the countries where they are based, German Chancellor Angela Merkel said on Wednesday.

"We will work towards ensuring companies have to pay more where they are based," she said in Brussels at the end of an EU summit, adding that this would affect big companies most.

Merkel also told reporters that leaders had make significant progress by agreeing to prevent banks keeping savings information secret.

4.44pm BST

EU leaders did not discuss whether they should harmonise their corporate tax rates to combat companies who base themselves in low-taxation juristictions, Van Rompuy said:

We have discussed tax fraud, and tax evasion…

Where there is harmful tax competition there are instruments to deal with this.

Van Rompuy adds that more work needs to be done to address instances of "aggressive tax planning", and companies taking advantage of loopholes.

4.33pm BST

In Brussels, president Herman Van Rompuy is telling the press conference that the European Council understands the importance on doing more to fight tax evasion.

Other press conferences are also taking place, so we should hear from other leaders soon – including David Cameron.

4.25pm BST

We've not done much on Europe today, with all the IMF action in Britain. But over in Brussels, a press conference is just getting underway following the Council of Europe meeting.

It's being streamed here.

Updated at 4.33pm BST

4.23pm BST

Do you think the IMF has pulled its punches on the UK, or are today's recommendations as hard-hitting as before? Have your say in this poll.

3.59pm BST

David Lipton, First Deputy Managing Director of the International Monetary Fund (IMF), addresses a press conference at the conclusion of the IMF mission for the 2013 Article IV Consultations with the United Kingdom in central London, on May 22, 2013.
David Lipton, First Deputy Managing Director of the International Monetary Fund, addressing today’s press conference. Photograph: CARL COURT/AFP/Getty Images

The IMF sums up its recommentations as: U.K. Should Restore Growth, Rebalance Economy, in a summary of today's report on its site.

It's topline bulletpoints are:

  • Some signs of an uptick in growth, but still far from strong, sustainable recovery
  • Financial policies should ensure monetary easing reaches broader economy
  • Fiscal, structural policies to boost expectations of incomes and investment returns

3.47pm BST

Lipton: change fiscal policy now

Back to the IMF's report into the UK.

David Lipton has been expanding on the Fund's recommendation that infrastructure spending should be brought forward. He's told Channel Four News that the government would improve its fiscal position in the long term by adjusting its tax and spending policy today:

Faisal Islam has written the quotes up on his blog:

Lipton said:

“Looking at this, it seems clear the country needs infrastructure, and since it needs it eventually this seems the right time to be intensifying the infrastructure effort. Doing it now when the impact would be very substantial seems like a wise course of action. Yes this is fiscal policy – it would require the Government to advance some of its current spending plans – to us seems like a strategy that would help the economy and not damage fiscal sustainability because of its contribution to growth. In long run it would leave the fiscal situation better,” he told me.

And when asked if this was a “Plan B”, Lipton added:

“No I don’t think it’s a Plan B. What we see is the need always to take into account of the impact of policies and their results and making corrections along the way”. But when he asked him if the UK should borrow a little more now in order to borrow less in future, he said: “I think the point is that having a slightly different path of adjustment, we think, would strengthen the economy because some of the spending would be high impact”.

Updated at 3.47pm BST

3.28pm BST

Shares surge on Bernanke testimony

In the financial markets, shares are rallying after the head of the Federal Reserve, Ben Bernanke, said it was too early to tighten monetary policy in America.

The FTSE 100 has leapt 67 points to 6870, up almost 1%, putting the blue chip index on track for a new 13-year high. The Dow Jones index has also posted similar gains, up 131 points at 15518.

Once again, share prices are benefting because the world economy is too weak to allow central bankers to halt quantitative easing, let alone raise interest rates.

The IMF's report into the UK also recommended "accomodative monetary policy", including the possibility of additional quantitative easing in Britain too.

Bernanke's testimony is online here:

Here's the key paragraph:

Recognizing the drawbacks of persistently low rates, the FOMC* actively seeks economic conditions consistent with sustainably higher interest rates.Unfortunately, withdrawing policy accommodation at this juncture would be highly unlikely to produce such conditions.

A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further. Such outcomes tend to be associated with extended periods of lower, not higher, interest rates, as well as poor returns on other assets. Moreover, renewed economic weakness would pose its own risks to financial stability.

* Federal Open Market Committee, which sets US monetary policy

Updated at 3.31pm BST

3.12pm BST

More reaction to the IMF's recommendations is arriving.

Graeme Leach, chief economist at the Institute of Directors, isn't impressed by the idea of bringing infrastructure spending forwards.

Spend the existing money more wisely instead, he argues:

When the IMF says that planned fiscal tightening will be a drag on growth, the discretionary measures amount to only £10 billion, which is pretty small. It would make more sense to argue to maintain the overall level of public spending, whilst shifting a greater proportion towards infrastructure, where the fiscal multipliers are stronger. In other words spend the existing money better, rather than spend even more.

Updated at 3.12pm BST

2.58pm BST

The language in the report issued by the International Monetary Fund is milder then the rhetoric of last month, when Olivier Blanchard said the UK was "playing with fire" by not implementing more growth measures.

But that doesn't mean it's not concerned. Indeed, the IMF says it's now taking a tougher line with the UK:

2.33pm BST

A recap of the IMF’s recommentations

Time to recap the key points from the IMF's report into the UK.

The International Monetary Fund has called for the UK government to bring in new growth measures to support the economy and ease the pace of its austerity programme.

Speaking in London David Lipton, first deputy managing director of the Fund, said the UK economy remained weak, and could suffer permanent damage without additional help.

George Osborne should bring forward intrastructure projects where possible to offset the £10bn of cuts hitting the economy this year, he told reporters in London.

This would mean the government changing the pace of its fiscal plan, with Lipton arguing that the UK's fiscal adjustment should take place in "a more backloaded fashion".

Without adjusting its plans, he said, Britain risked higher unemployment and lower growth in the medium term.

Our view is there is no silver bullet. We are not suggesting that this adjustment in the path of fiscal consolidation would be enough to restore the economy to full utilisation. But we do think it could play a useful and a helpful role for the economy, for workers, and for companies.

The key quotes from Lipton are here.

Lipton said the IMF was encouraged by recent economic data from the UK.  However, it remaind concerned that "persistent low growth" will damage medium-term growth forecasts.

And he didn't shy away from pushing the UK government to do more. On infrastructure spending in particular, he said:

…the government should be more supportive than it has been or it plans to be.

Lipton was speaking after the IMF published its latest annual review of the UK economy. Following a two-week assessment, they also recommended that the UK should speed up the sale of its stakes in RBS and Lloyds. Full report here.

Ed Balls, shadow chancellor, urged Osborne to take the IMF's advice. He claimed Lipton's comments showed that the government had not done enough to support jobs and growth:

Behind the diplomatic language this is the call for action on jobs and growth that the IMF has been threatening to deliver for many months and a stark warning of the consequences if the Chancellor refuses to listen.

More from Balls here.

Updated at 3.00pm BST

1.52pm BST

The IMF is also clear that its recommendations do not amount to a complete new fiscal plan for Britain.

Updated at 2.08pm BST

1.46pm BST

The key quotes from IMF’s David Lipton

David Lipton of the IMF
David Lipton of the IMF.

Watching the IMF's press conference again, the key section comes when David Lipton fleshes out the Fund's recommendation for increased spending on infrastructure.

Q: Are you saying that the UK government should slow its planned pace of fiscal consolidation this year in order to support growth?

Lipton:

Yeah, what we're saying is that… within the framework of its medium-term objectives, that it would be in our view useful for the economy for some… infrastructure investment and other measures to be brought towards the present to reduce the drag that is presently intended under the present framework in this year and in the coming years.

In essence this would be to allow the adjustment to take place in a more backloaded fashion and provide more support for the economy at the front end of the period.

Lipton was then asked whether the government should look to offset the full £10bn of drag from the fiscal consolidation this year., and replies:

We see room to offset the drag from the planned discretionary measures…. I want to be clear, we are recommending a range of other policies beside fiscal policies that would also be supportive of the economy.

Our view is there is no silver bullet. We are not suggesting that this adjustment in the path of fiscal consolidation would be enough to restore the economy to full utilisation. But we do think it could play a useful and a helpful role for the economy, for workers, and for companies.

Now, to determine exactly how much is feasable one has to look through the infrastructure roster and see what can be advanced. Our view is that what can be advanced, should be advanced.

You can watch a recording of the press conference here. The above quotes are from 14 minutes in.

Updated at 2.35pm BST

1.22pm BST

Key event

Back at the Treasury, David Lipton is explaining to journalists why the government should bring forward more infrastructure spending to help the economy.

Faisal Islam of Channel 4 News tweets the highlights:

1.07pm BST

Balls: Osborne should listen

Ed Balls MP, Labour’s shadow chancellor, says that "behind the diplomatic language" the IMF is urging the government to adjust its plans.

Here's his full statement:

Behind the diplomatic language this is the call for action on jobs and growth that the IMF has been threatening to deliver for many months and a stark warning of the consequences if the Chancellor refuses to listen. 

The IMF is clear that we are a long way from the strong and sustained recovery we need and backs the warnings we have made for three years that the Government’s plans are a drag on growth and risk doing long-term damage.

They say, as we have, that you need to strike a balance between the pace of fiscal consolidation and support for growth and jobs. And it is clear that the Government has not got that balance right. That is why the IMF is calling for urgent action to kick-start the economy, including bringing forward long-term infrastructure investment.

With the IMF warning that the recovery is far from secure and the risks are to the downside, a sensible Chancellor would listen to the IMF’s advice and take action. Only a reckless Chancellor would try to plough on regardless. George Osborne has gained a reputation for always putting politics before economics. This is his chance to redress the balance and do the right thing for Britain.

12.58pm BST

Larry Elliott: IMF wants to see more action

Our economics editor Larry Elliott was at the press conference, and confirms that while the initial IMF verdict may have appeared to have pulled its punches, that was not the message coming out from Lipton:

Larry tell me that the Fund's verdict is:

The UK economy is very weak and it has serious problems. The IMF may have couched its report in more diplomatic and palatable language but the definite message is that they want to see more action.

There's another briefing at the Treasury now, and Larry will be giving his full analysis later.

12.56pm BST

Curious press conference, that. David Lipton was rather more critical of the govenment's plans than in the IMF's official statement.

That statement's now online here:

Updated at 1.16pm BST

12.46pm BST

The press conference is over. Reaction and analysis to follow.

12.46pm BST

What the IMF is suggesting:

Lipton explains that the IMF's proposals are still 'fiscally neutral' over the long term.

But the fund is effectively suggesting that some of the government's fiscal adjustment should be pushed backwards.

And Lipton also warned that the UK could suffer higher unemployment and lose economic capacity permanently if ignores the advice.

12.39pm BST

Q: Would Britain be in a better place if the government had prioritised infrastructure spending earlier?

Yes, Lipton replies. If there had been greater focus several years ago then it would be easier to get projects under way now.

But that's with the benefit of hindsight, he adds….

12.35pm BST

Another question on whether the IMF has changed its mind on Britain.

Lipton replies that the Fund is encouraged by recent data, but still believes the government should do more to stimulate growth:

The economic data shows an uptick… we acknowledge that and welcome that but it's modest so far…

The output gap remains substantial and likely to remain so for some time, so we continue to see areas for further action.

12.32pm BST

£10bn spending cuts will hurt growth

The IMF is pretty clear that the spending cuts being implemented tthus year will hurt growth — thus its call for extra growth measures.

Here's the key section from the report:

But planned fiscal tightening will be a drag on growth. Discretionary measures for this fiscal year amount to £10bn.

These will pose headwinds to growth, as expected, coming on top of domestic deleveraging and a weak external outlook, notably at a time when resources in the economy are underutilized.

Updated at 12.32pm BST

12.30pm BST

Key event

Q: Has the IMF toned down its criticism of the UK, having been so critical of Osborne earlier in the year?

Lipton replies that there are areas where Britain must do more to address demand and supply constraints.

In particular, infrastructure spending. Lipton explains:

On a range of areas, the government should be more supportive than it has been or it plans to be…. and this effort should start now…

12.26pm BST

"There's no single silver bullet" to improve the UK economy, Lipton says.

But bringing forward capital spending (as explained at 12.11pm) would be good for businesses, and good for consumers, he suggests.

12.24pm BST

At the press conference, David Lipton is saying Britain needs a multi-pronged approach to the crisis. The government should do more to stimulate growth, and the Bank of England should keep interest rates low until the economy is strong.

Updated at 12.27pm BST

12.23pm BST

You should be able to watch the press conference on the BBC's website, or on Reuters here.

12.21pm BST

Heather Stewart: the mood music is grim

Here's some rapid analysis from my colleague Heather Stewart:

Even before the IMF's team touched down in London, Treasury officials had promised to put up a staunch defence of their tax-and-spending policies.

George Osborne will regard it as a triumph that his officials succeeded in persuading the IMF a) to concede that there are signs of life in the UK economy; and b) to leave out any specific call for a change of heart on fiscal policy. 

But the mood music is still grim: the IMF stresses the "tepid" nature of the recovery, and warns that growth is likely to remain weak for a prolonged period, as the banking sector repairs itself and the eurozone downturn rolls on.

Against that backdrop, it says, the Treasury faces a "dilemma", between fixing the deficit, and underpinning growth. And reading between the lines, the IMF is fairly clear about which prong of the dilemma it would seize: it warns of the "permanent" damage that could be done to the economy by a long period of economic weakness.

12.18pm BST

Key event

The IMF press conference in underway in London, with David Lipton outlining the situation in the UK.

He gave a sobering assessment of the UK economy, saying the recovery is slow, and explaining how a new burst of capital spending could secure the recovery.

The key message form Lipton, really, is that Britain faces an unpleasant dilemma:further fiscal consolidation will weaken the UK output, and risk permanent damage to the economy.

However, relaxing the pace of fiscal consolidation will see debts accumulate further.

Thus, he suggests, Osborne's best plan is to pursue measures that address "supply-side constraints" and also provide near-term
support for the economy.

Particularly, he adds, when Britain's borrowing costs are so low and peopel are out of work:

In the current context in which labor is underutilized and funding costs are cheap, the net returns from such measures are likely to be particularly favorable.

12.12pm BST

As expected, the IMF also urges the government to get Royal Bank of Scotland and Lloyds back fully into the private sector as soon as possible.

12.11pm BST

The IMF’s growth recommentations:

While not directly criticising Osborne's fiscal programme, the IMF calls for several "growth-enhancing initiatives" to offset the drag from consolidation and bolster the recovery.

It also warns that the chancellor's new Help To Buy scheme could backfire.

Here's the iMF's growth recommentations:

• Bringing forward planned capital investment where possible, which would help catalyze private investment and spur much-needed growth. Alongside this, well- designed public guarantees could be used to facilitate private investment.

• Further modifying the composition of consolidation to boost growth. This could include growth-friendly measures, such as reducing marginal effective corporate tax rates to bring investment forward, and introducing tax allowances for raising equity.

To offset the budgetary impact of these measures over the medium term, the government could undertake a reform of property taxes and consider broadening the VAT base.

• The 2013 Budget announced a new scheme, Help To Buy, aimed at boosting activity in the housing market. This measure may temporarily help boost confidence in the housing market, but there is a risk that, in the absence of an adequate supply response, the result would ultimately be mostly house price increases that would work against the aim of boosting access to housing. To mitigate this risk and engineer a supply response, the government should consider fiscal disincentives for holding land without development. 

Updated at 12.11pm BST

12.06pm BST

IMF: Prolonged weak growth likely

Despite those recent signs of recovery, the IMF warns that Britain faces the prospect of a prolonged period of weak growth, with risks to the downside.

The eurozone crisis is a key threat, it added: Here's the key section:

The key risk is that persistent slow growth could permanently damage medium-term growth prospects—this could arise if private sector deleveraging is larger than expected, credit conditions fail to improve, external demand does not pick up, and the drag from fiscal consolidation is greater than anticipated.

In addition, despite recent market calm, growth in the euro area is likely to be weak, and the re-emergence of market tensions cannot be ruled out, with the potential for continued spillovers to the UK from depressed exports, higher bank losses and funding costs.

Updated at 12.06pm BST

12.01pm BST

IMF: UK faces slow recovery

The report is out! And the International Monetary Fund has warned that the UK faces a slow recovery.

It urges the government should implement new growth measures to stimulate the economy.

But it has not directly call on George Osborne to delay his spending cuts, saying there are "nascent signs of momentum”.

There's no explicit call to slow the pace of fiscal consolidation, but the IMF remains concerned about the economic situation.

In its official statement following the two-week visit to London, the IMF said there are encouraging economic signs, but warns:

The UK is, however, still a long way from a strong and sustainable recovery.

Notwithstanding the recent uptick in activity, per capita income remains 6 percent below its pre-crisis peak, making this the weakest recovery in recent history.

Of particular concern is that capital investment (as a share of GDP) is at a postwar low, and that youth unemployment is high.

More to follow!

Updated at 12.01pm BST

11.51am BST

Just under 10 minutes to go until the IMF's conclusions are announced.

It'll be followed by a press conference with David Lipton, first deputy managing director of the IMF, and Krishna Srinivasan, IMF assistant director and UK mission chief.

And lots of reaction from Westminster and the City…

11.27am BST

Speaking of tax, deputy prime minister Nick Clegg has said he raised the issue with Google's chief executive on Monday. My colleage Andrew Sparrow has the details in his Politics Live blog.

11.24am BST

Cameron on tax avoidance

British Prime Minister David Cameron arrives for the European Council meeting at the EU headquarters in Brussels on May 22, 2013.
British Prime Minister David Cameron arriving for the European Council meeting this morning. Photograph: GEORGES GOBET/AFP/Getty Images

Back to Brussels, and David Cameron banged the drum against tax avoidance as he arrived for today's European Council meeting.

The PM told reporters that international collaberation was a key part of ensuring that companies were paying appropriate amounts of tax.

Reuters has the quotes:

I believe in low taxes for businesses because we have got to encourage investment, we have got to encourage jobs."

"We have got to make sure as we set those tax rates that companies pay taxes and that means international collaboration, the sharing of tax information."

"I am making that the headline of my G8 summit in a month's time and it is important that we make sure that (in) the European Union as well, that we act together to make sure we do everything on this agenda.

It is good for our own countries, it is also good for the developing world as well.

11.07am BST

Under an hour to go until the IMF releases its statement on the UK economy.

In the meantime, the Labour Party has cited today's public borrowing figures (Britain borrowed £8bn in April) as proof that George Osborne should change course.

Here's the statement from Chris Leslie MP, Shadow Financial Secretary to the Treasury:

The Government’s failing economic policies continue to be self-defeating. A flatlining economy and high unemployment means lower tax revenues and more benefits spending, which is why deficit reduction has stalled.

Underlying borrowing was £1.3 billion higher last month compared to a year ago and the Government is now set to borrow £245 billion more than planned. This is not more borrowing to invest in creating jobs for the future, but simply to pay for the costs of this government’s economic failure.

After three years of failure the Chancellor must realise that we need strong and sustained growth to get the deficit down. Alongside sensible spending cuts and tax rises we need a jobs and growth plan, including building thousands of affordable homes and a compulsory jobs guarantee for the long term unemployed.

But will the IMF agree? Not long until we find out….

10.54am BST

Corporate tax avoidance is of the major issues under discussion at today's European Council meeting.

The Irish government has insisted today that the problem can only be solved through global co-operation, which sounds like another attempt to rebut criticism of its own low corporation tax rate,

Reuters has the story:

The international community needs to work together to stop large multinationals aggressively playing one country's tax code off against another, Ireland's Minister for Enterprise said on Wednesday.

"They play the tax codes one against the other, that is tax planning and I think we do need international cooperation through the OECD to deal with the aggressive nature of that," Richard Bruton told national broadcaster RTE.

Irish prime minister, Enda Kenny, may expand on this point when he briefs the media in around 40 minutes time.

10.44am BST

Over in Brussels, European leaders are arriving for today's European Council meeting. There's a live feed here.

10.13am BST

Rob Wood, chief UK economist at Berenberg, agrees that it's "too premature" to call the UK as out of the woods, following that drop in retail sales.

Households are struggling with price rises outstripping earnings growth and government benefit cuts.

10.10am BST

Retail sales, the reaction

The pound has dropped over half a cent to below .51 as traders digest the news that UK retail sales were so weak in April.

Economists are concerned too. Here's Howard Archer of IHS Global Insight:

Even allowing for the negative impact of ongoing cold weather and the fact that Easter occurred in March this year, April’s marked drop in retail sales provides a reminder that the economy is not yet out of the woods and still has a challenging job to develop sustained, clear growth.

It's certainly hard to believe a 4.1% drop in food sales can be blamed on Easter and the weather:

9.57am BST

Britain borrowed £8bn to balance its books in April, a record for the month.

However, strip out the effect of the 2008 bank bailouts, and the monthly deficit came in at £6.3bn – below forecasts. So better news than the disappointing retail sales:

9.48am BST

Weak retail sales

UK retail sales took an unexpected, and nasty, tumble in April, new data just showed.

Retail sales fell by 1.4% in April (stripping out fuel costs), their biggest fall in a year, suggesting that the economy may not be recovering as briskly as hoped.

Food sales were down by 4.1%. The Office for National Statistics blamed the bad weather in April — apparently sales of barbecue food and garden furniture were particularly weak.

Updated at 9.56am BST

9.39am BST

The Bank of England minutes are online here:

Here's the section on the MPC's assessment of the economy:

News on the month had on balance been favourable and it was likely that the level of output at the end of Q2 would be 0.7% higher than the Committee had expected three months ago.

By and large, asset prices had continued to rise, but the outlook for the global economy remained subdued, and the risk of a more severe crisis in the euro area remained a major potential impediment to the domestic
recovery.


Outvoted again: Sir Mervyn King. Photograph: David Jones/PA

9.33am BST

Bank of England minutes released

The Bank of England's monetary policy committee remained divided 6-3 on whether to expand its quantitative easing programme, minutes of its last meeting show.

Governor Mervyn King, Paul Fisher and David Miles all pushed for another £25bn of QE, but were outvoted again.

And setting the scene for the IMF press conference at noon, the MPC said it was more upbeat about the UK economy….but still concerned about the eurozone.

More to follow.

9.26am BST

Treasury insiders are prepared for IMF criticism, despite recent upbeat economic data, according to Claire Jones and Chris Giles in the Financial Times.

They point to Tuesday's fall in inflation, for the first time since last September:

The timing is ideal for a chancellor at loggerheads with fund economists.

But officials do not think the better economic data will be enough to silence IMF calls for the UK to reduce the pace of deficit reduction.

And like Nick Watt this morning (see 8.09am), the FT also reckons the chancellor will not bow to any criticism.

9.12am BST

Gaby Hinsliff: Osborne may not be dead in the water

Is the worst over for George Osborne, asks Gaby Hinsliff this morning. As she points out, the chancellor has looked quite upbeat recently "for a man undergoing the economic equivalent of having the Ofsted inspectors in" (great phrase):

The buzz in Whitehall is that today's crucial IMF assessment of the economy, compiled by a team that has spent weeks embedded in the Treasury, won't be without criticism but will be less devastating than initially feared.

After several false alarms, the Treasury finally thinks it spies light at the end of a very dark tunnel.

There are reasons for optimism, now that the UK economy has returned to growth. Britain's dominant service sector just posted its best month since the Olympics, for example, and the stock market rally (the FTSE 100 hit a new 12-year high last night) means a section of the population are feeling wealthier. 

It may be the wrong sort of recovery — based on asset bubbles rather than a resurgence of British industry. But as Gaby explains, there are major political implications:

And after five miserable years, better-off swing voters may well be tempted to treat even fake prosperity much as Britons traditionally do the first sniff of sunshine, by getting out there and frying while it lasts.

They're going to take some convincing that it's a bad thing for their pension funds to be growing again in a bullish stock market, or for their houses to be worth stupid amounts – even if they are worried about their own children being forced off the property ladder. The challenge for Labour, then, may soon be persuading voters to look this dubious economic gift horse in the mouth.

Here's the full piece:

George Osborne may not be dead in the water after all. What will Labour do then?

Updated at 9.12am BST

8.55am BST

Larry Elliott: Furious Osborne has tried to change IMF’s mind

Someone stands to lose face today when the International Monetary Fund passes judgment on the UK, says our economics editor Larry Elliott.

But will it be George Osborne, or the IMF's chief economist Olivier Blanchard?

It was Blanchard who last month famously criticised the chancellor's March budget for not containing more growth-friendly measures. Christine Lagarde, the head of the IMF, also went public with her worries over the UK.

Larry writes:

George Osborne was furious when IMF chief economist Olivier Blanchard dropped his anti-austerity bombshell during its spring meeting in Washington. The Treasury has been doing its utmost to get the IMF mission to change its view during talks over the past fortnight.

But Larry also flags up that Robert Reich, former labour secretary under Bill Clinton, revealed yesterday that US policymakers use Britain as an example of the dangers of austerity….

8.43am BST

The agenda

David Lipton, first deputy managing director of the IMF, and Krishna Srinivasan, IMF assistant director and UK mission chief, will hold a press conference at noon in the Treasury, in London.

Their report, officially called the Conclusion of IMF Article IV Mission to the United Kingdom, will also be released at 12.00pm.

There's also a torrent of UK economic data this morning, including the details of the Bank of England's last monetary policy meeting.

And in Europe, leaders will be meeting for a European Council meeting where growth and tax avoidance will be discussed.

• Bank of England minutes: 9.30am BST

• UK public finances and retail sales: 9.30am BST

• CBI industrial trends: 11am BST

• European Council meeting; afternoon

• Ben Bernanke, Federal Reserve chairman, testifying at the Senate: 3pm BST

8.30am BST

IMF could push for bank sale stake

The IMF may also push the UK government to speed up the sale of its stakes in Royal Bank of Scotland and Lloyds Banking Group.

There were reports last night that today's report will recommend that disposing of the £65bn stakes in the two bailed-out banks is made a priority.

Speculation has been building for weeks that George Osborne could start the selloff process soon, although the chancellor has not yet laid out a timescale. At present, though, RBS's share price is below the price at which the taxpayer bought its stake.

My colleague Jill Treanor explains:

Hopes of a sell-off of the 39% stake in Lloyds and 81% stake in RBS have risen in recent days as their share prices have climbed. On Tuesday shares in Lloyds closed just above 61p, the level which the Treasury has signalled it now regards as break-even for the taxpayer, while RBS was at 342p, still below any break-even targets set by the government.

8.09am BST

IMF to deliver verdict on UK today

Good morning. The British government and the International Monetary Fund could go toe-to-toe today, when the IMF publishes its annual healthcheck of the UK economy.

After two weeks trawling through the nation's accounts and interviewing top officials, the IMF will release its conclusions at noon, followed by a press conference in London.

The IMF had been expected to call for George Osborne to make fresh moves to stimulate the economy, and slow the pace of his fiscal cuts package.

Just a month ago, its top economist warned that the UK government was "playing with fire" by not doing more to boost the weak economy. But recent data – including the news that Britain's economy has started growing again – may have changed the IMF's mind. Or could at least mean its criticism is watered down.

David Cameron's government has already nailed its fiscal colours to the mast, declaring that it remains confident in its plans.

Nicholas Watt, our chief political correspondent, writes this morning:

Downing Street said on Tuesday that it would not anticipate what the IMF will say when it publishes its annual healthcheck of the British economy under its article IV programme. But the prime minister's spokesman added: "The government believes it has the right economic approach."

Downing Street said that the latest GDP figures showed that the British economy is growing and jobs are being created. "Our view is the economy is healing and we are on the right road but we have to stick to it," Cameron's spokesman said.

Nick's full story is here: Government will 'stick to its plans' when IMF delivers verdict on economy.

I'll be tracking the story through the day, along with other key events in the UK economy and beyond.

Updated at 8.20am BST

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The outlook may be opimistic but the Greek unemployment picture remains dire. EU car sales rise for first time in 19 months. Spanish bad loans rise. Italian government to reform property tax. US consumer sentiment index rose to its highest level in six years, up from 76.4 in April to 83.7 so far this month…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis as it happened: Greece on track to exit slump next year, says Troika” was written by Graeme Wearden and Nick Fletcher, for theguardian.com on Friday 17th May 2013 17.08 UTC

6.08pm BST

IMF report on Cyprus leads to new anti-austerity row

Crisis-hit Cyprus could be headed for a much worse recession than initially anticipated when international creditors agreed to prop up its economy, the IMF has announced in a 47-page report released today. Helena Smith writes:

Forecasting that the island’s output will shrink by at least 9% in 2013 (and perhaps even more) the IMF said Cyprus faced “unusually high” macro-economic risks if it did not adhere to the stringent terms of the €13bn bailout it has signed with the EU, ECB and IMF.

"Should these risks materialize, additional financing measures may be needed to preserve debt sustainability," it said, predicting that the tiny nation’s debt load would hit 126% of gross domestic product in 2015 before falling to 105% of GDP by 2020. 

Despite having already agreed to draconian belt-tightening measures – including highly controversial capital capitals – it was likely that Nicosia would be required to further slash GDP by 4.7% a year (the equivalent of €900m worth of budget cuts) over 2015 to 2018 to secure the island’s long-term primary budget surplus, said the IMF.

With the ink on the loan agreement barely dry, the report has unleashed fury among politicians on the island with the anti-austerity main opposition Akel party not only slamming the bailout deal but questioning if the government had read it before it signed up to the agreement. 

Akel cadres say the IMF assessment will embolden those now openly asking if it would not be better for the beleaguered island to exit the eurozone than apply such tough conditions.

And on that note, it's time to shut up shop for the evening and for the week. Thanks for all your comments, and we'll be back next week.

6.01pm BST

Here's the full statement on the EFSF payments to Greece.

As IfigEusLannuon rightly points out below the payments are loans not aid and have to be paid back.

5.39pm BST

Slovenia debt cut by Fitch

Slovenia has seen its debt rating cut by Fitch, the agency has just announced.

Last month Moody's reduced its rating on the country to junk, from Ba1 to Baa2.

Now Fitch has cut from A- to BBB+ with a negative outlook. It said the economic outlook had deteriorated and it now forecast a 2% decline in GDP in 2013. It predicts a 0.3% decline in 2014, leaving it as only one of two eurozone countries to contract.

The agency said its estimates of the cost of bank recapitalisation were higher than official forecasts. It estimated the sector needed an injection of €2.8bn, with €2bn needed for the three largest banks. This is more than double the official estimate.

5.27pm BST

European shares on the rise again

European car sale figures and the positive US consumer sentiment data have combined to keep markets moving higher.

• The FTSE 100 finished 35.26 points higher at 6723.06

• Germany's Dax rose 28.13 points to 8398.00

• France's Cac climbed 22.20 points to 4001.27

• Italy's FTSE MIB added 60.6 points to 17,604.61

• Spain's Ibex was up 40.1 points at 8582.4

• The Athens market added 1.62% to 1152.6

And in the US, the Dow Jones Industrial Average is currently around 60 points or 0.,4% higher.

4.14pm BST

Still with Greece, the ESFS bailout fund has said the country will receive €4.2bn of the next tranche of €7.2bn aid.

That takes the total aid so far to €120bn. The next payment will be made in June.

3.42pm BST

Tensions grow after ejection of Golden Dawn MP

More on this morning's ejection of a far-right MP from the Greek parliament, which has sent political tensions soaring. Helena Smith writes:

Predictably, the extreme right Golden Dawn party was quick to roll out an announcement following the removal of its MP, Panayiotis Iliopoulos, from the 300-seat House.

Railing against the “filthy slanderous attack of the entire media against Golden Dawn” it denied than any of its MPs had shouted “Heil Hitler” during the heated exchange in the chamber, [see earlier post].

“The controversial and provocative phrase was uttered by Syriza’s MP from Zakynthos, Stavros Kontonis,” it insisted. “We demand from the parrots of the system who have linked Golden Dawn with this particular phrase to revoke [their stance] immediately, otherwise they will suffer the legal effects [that come with] dissemination of false news and slanderous defamation.”

Video of Greek parliamentary session

Hours later, minutes taken during the session revealed the offending phrase had been uttered not by the neo-Nazi party’s spokesman, Christos Pappas, as initially believed, but Christos Panztas, an MP with the far-left Syriza, the country’s main opposition party. Pappas was the focus of another parliamentary furore earlier this week when it was exposed that he had openly praised the Fuhrer in a piece written for Golden Dawn’s magazine years ago.

The incident does not bode well – even if this is not the first time a Golden Dawn MP has caused commotion in the House. With the party now able to take the moral high-ground, many worry the episode could stoke further the flames of support for the far right group shown in the latest poll to be published today as firmly entrenching its position as Greece’s third major party with 11.5%t.

On Thursday. Thessaloniki mayor Yiannis Boutaris said Golden Dawn’s presence in parliament was “a disgrace.” “Golden Dawn should not be in the parliament. This party is a disgrace for Greek society. The fact that this party is third is indicative of the abjection of Greek society.”

Updated at 3.42pm BST

3.01pm BST

US consumer sentiment at six year high

There's an upbeat mood in the US, to judge from the latest consumer survey.

The Thomson Reuters/University of Michigan's sentiment index rose to its highest level for six years, up from 76.4 in April to 83.7 so far this month. That was higher than the forecast of around 78.

Consumers were more positive about their personal finances than at any time since 2007, especially among households in the top third of income levels. Annalisa Piazza at Newedge Strategy said:

Today's outcome was somehow at odds with the recent news on the development of the US economy that depicted a rather mixed picture, with solid retail sales versus sluggish business confidence indicators. If anything, consumer confidence might have been supported by lower gasoline prices that implicitly prop up buying conditions for US households. That said, we suspect US households continue to remain sceptical on the development of future activity as headwinds to growth remain well alive.

The news has helped lift the Dow Jones Industrial Average by more than 50 points in early trading.

Updated at 3.03pm BST

2.46pm BST

EC report into Greece

Greece is on track to emerge from its economic slump next year, its lenders predicted today.

The European Commission's latest report into Greece, published today (you can download it here), argued that Athens is making significant progress under its bailout deal.

Following its latest visit to Greece, Troika officials remain convinced that the Greek economy will start growing in 2014, with a GDP increase of 0.6% next year.

The top-line of the report is quite upbeat about a country that has suffered deeply since the crisis began:

Public finances are steadily improving, the banking sector recapitalisation has reached an advanced stage and important structural reforms are being implemented, although further major efforts are needed to fully
deliver the delayed public administration reform and to make the new semi-autonomous revenue administration effective in the fight against tax evasion.

But the Troika also cautioned that the fiscal outlook beyond 2014 "remains inherently uncertain", as further austerity measures will be needed to hit future targets:

The fiscal outlook depends to a large extent on progress in strengthening the tax and social security revenue administrations. Within the current macroeconomic framework, the gaps are currently estimated at about 1.7% of GDP in 2015 and 2.1% of GDP in 2016. The task of filling the gap in 2015-16 will be taken up in the context of the 2014 budget
negotiations in the fall.

The report also predicted that Greek wage costs will be driven down by another 7% this year, following a 4.2% drop in compensation per employee last year. That will mean Greece will "regain its 1995 labour cost competitiveness position relative to the Euro area" in 2014.

Greek labour costs, Troika assessment
Greek labour costs, Troika assessment Photograph: /EC

The Troika also remains concerned about Greece's banks, saying they continue to face "the consequences of the recession and the inability of some borrowers to service their debt obligations".

And on unemployment, the picture is pretty bleak, with the jobless rate expected to remain over 20% in three years time.

The number of dismissals still remains high and the overall labour market is likely to remain weak until GDP begins to recover.

Hence, the annual unemployment rate is projected to peak at 27.0% in 2013. Once the recovery gains traction, especially the frontloading of wage adjustments is projected to give rise to a relatively rapid and sustainable decline in unemployment to 26.0% in 2014 and to 21.0% in 2016.

And on that note, I'm handing over to my colleague Nick Fletcher for the rest of the day (easing back into things). Thanks all, and best wishes for the weekend. GW

Updated at 3.00pm BST

2.19pm BST

Europe's contruction industry suffered another poor month in March, with output falling by 1.7% month-on-month across the eurozone (and 1.1% across the EU).

Eurozone construction data, to March 2013
Eurozone construction data, to March 2013 Photograph: /Eurostat

The largest decreases were seen in Portugal (-10.7%), the Czech Republic (-7.6%) and Slovakia (-5.0%), with the highest increases in Romania (+2.8%) and Spain (+2.4%).

New data was only available for 14 members of the EU: production fell in ten countries, and only rose in four.

1.53pm BST

An invitation

Would you be interested in meeting your fellow contributors – along with the journalists who run the blog?

The Guardian’s news community team are hosting a meet-up event at the Guardian’s offices at Kings Place in London on 5th June. The setup will be informal – with drinks and nibbles and a chance to get to know other top contributors followed by a Q&A with the Guardian liveblogging team.

If you're interested in attending, please email james.walsh@guardian.co.uk.

1.39pm BST

As it's quiet, here's a couple of interesting posts that caught the eye this morning….

Reuters' James Saft has written a nice piece about how quantitative easing may be backfiring, by encouraging investors to hold more cash rather than riskier assets.

The thinking behind QE rests partly on the assumption that buying up government bonds will drive interest rates down and entice investors to tilt their holdings towards riskier investments like stocks. That in turn is supposed to goose investment and consumption.

Unfortunately, that assumption may be running afoul of, or fouling up, the way in which most investors construct their portfolios.

Saft is riffing off this research note published earlier this week Toby Nangle, fund manager at Threadneedle Investments. In it, Nangle explained how investors would usually buy government bonds as a handy hedge against riskier holdings in shares. QE, though, has driven prices so high that the strategy doesn't work:

By bidding yields on government bonds down to current levels, monetary policymakers have largely extinguished government bonds as an effective portfolio hedge.

Elsewhere, fund manager/blogger @pawelmorski has rattled out another interesting piece, pinning the blame for Europe's recent economic misery on its banks, rather than government austerity: It Is That Simple: Europe’s Problem is the Banks.

US/EU bank lending
US/EU bank lending Photograph: /@pawelmorski

These two series are a long way from directly comparable but they’re close enough that the divergence is interesting. US firms are borrowing again, European ones aren’t. This looks like a clear-cut job for monetary policy.

Timely, given the news this morning that Spain's bad bank debts are rising (see 9.07am).

12.58pm BST

Mersch: eurozone governments must make tough choices

Yves Mersch, ECB executive board member, has given a speech in London today on the future of the eurozone, and the mistakes that led to the current crisis.

It's an interesting insight into current thinking in the ECB, Mersch talks about the importance of getting banking union agreed, but also focuses on the need for 'structural' change within Europe.

On how the crisis began, Mersch explained:

The euro area has been facing insufficiencies on several fronts, all at the same time. Let me be blunt: it has had governance shortcomings, stretched states, fragile banks, shrinking economies, sinking confidence in institutions and doubts about its integrity. Each of these difficulties has exacerbated the others; it has been a vicious circle. The crisis did not originate in the euro area, nor is it limited to it. But inside the euro area it has inflicted severe losses and pain, particularly on the younger generation

Mersch also fleshed out the challenge facing national governments:

In most of the stressed euro area countries this still requires tough choices across the generations and over time: e.g. education versus pension entitlements, infrastructure versus healthcare, research and development versus defence, and so on.

Strengthening of tax administrations and treasury systems, expenditure control, privatisation will also be crucial. Reducing the costs of bureaucracy will matter more than ever across the euro area.

There are varying needs for true innovation clusters à-la-Silicon Valley, as well as investments in scientific and technical education, research and development, encouragement of “angel investments”, and grassroots and sustainable banking.

Labour markets need to become inclusive and fair in every country, while encouraging labour mobility, in particular in a monetary union. Greater competitiveness and sustainable growth of the whole euro area will then follow.

This has been a regular theme at Mario Draghi's press conferences too. Critics, though, argue that it's hard for leaders in, say, Italy or Spain to push through structural reforms at the same time as chasing demanding deficit-reduction targets.

Mersch's speech is online here, resolutely titled: “Built to Last”: The New Euro Area Framework

12.23pm BST

Italy to reform property tax

The Italian government has agreed to reform the unpopular IMU housing tax, a key demand from coalition partner, the People of Liberty party.

Prime minister Enrico Letta told a press conference that payments will be suspended in June, adding:

We are setting a time until August 31 within which the government and its supporting majority will reform IMU.

Letta added that the cost of reforming IMU would come "100%" from spending cuts.

IMU was introduced by former technocratic leader Mario Monti, and proved deeply unpopular. Silvio Berlusconi's election campaign earlier this year focused on his promise to abolish it. Getting rid of it altogether would cost €8bn.

Letta also announced a new €1bn fund to help unemployed people get back to work.

Opinion poll data today showed falling support for Italy's new coalition government of centre-left, centre-right and centrist parties. Letta only enjoyed 43% support when he was sworn in under a month ago, but has now lost nine percentage points.

Updated at 12.30pm BST

11.51am BST

In the UK, a Bank of England monetary policymaker has declared that the British economy may be inching back to recovery.

Martin Weale told an audience in Birmingham:

No one can be certain but it is possible that the near-stagnation of the past three years is being replaced by a move to modest growth.

Weale also argued that the BoE's monetary policy committee should resist acting like "inflation nutters", and use its new, more flexible mandate on inflation targeting wisely:

The correct thing for policymakers to do would be to accept a modest degree of entrenchment of raised inflation expectations as a price worth paying for a smoother output path.

The full speech is online here: and includes this handy graph showing how UK wage growth has stuttered to a near-standstill (just 0 .8% year-on-year)

UK wage growth levels
UK wage growth levels Photograph: /BoE/ONS

Weale's speech also includes a reference to a lecture given by some chap called Mark Carney….

11.10am BST

Shares in several Europe's carmakers have risen today, following the news this morning that sales rose year-on-year in April.

Peugeot Citroen is leading the risers, up 6% (despite reporting a 10% drop in its own sales during the month).

Automobile share prices, May 17th
Photograph: Thomson Reuters

10.43am BST

Exciting scenes in the Greek parliament this morning, where a Golden Dawn MP was thrown out of the chamber amid a stream of cursing.

Panayiotis Iliopoulos was shown the door after claiming that opposition party leader Alexis Tsipras was working on a "souped-up question" for prime minister Antonis Samaras. The PM, Iliopoulos claimed, was "sleeping the sleep of the just" (he's actually on a trip to China).

Kathimerini has the details:

Pulled up,,,for using derogatory language, Iliopoulos went further, condemning fellow MPs as "wretched sell-outs" and "goats". He was removed from the House, cursing all the while, witnesses said.

Also in Friday's session, a request by former prime minister and socialist PASOK deputy George Papandreou to be granted leave so he can attend a conference abroad prompted hoots of laughter from Golden Dawn MPs in attendance.

Updated at 11.22am BST

10.04am BST

Speaking of Spanish banks… DonJuan points out below that the former boss of Caja Madrid was remanded in custody last night and relieved of his passport.

Miguel Blesa is being investigated over "alleged irregularities" in the lender's 0m purchase of the City National Bank of Florida in 2008.

El PaIs's story has more details:

Caja Madrid took control of City National Bank of Florida in 2008 after paying 618 million euros for 83 percent of the US lender in a deal approved unanimously by the Spanish bank’s board of directors in order to “strengthen” its presence in America.

The Bank of Spain noted that as well as excessive investment in the US lender the purchase was carried out in such a way as to “elude the obligatory control of the tax and economy authorities in Madrid.”

Caja Madrid is one of the firms that were merged to form Bankia, with ill-fated results.

Updated at 10.36am BST

9.37am BST

Spain’s ‘extend and pretend’ strategy

The rise in Spain's bad loans in March follows a drop earlier this year, when Spanish banks transferred some toxic assets to the country's new Bad Bank.

Analysts fear that Spain's banking sector is still refusing to face reality by admitting that other loans won't be repaid.This is the “delay and pray” strategy, where credit is extended even though the borrower is highly unlikely to repay the money.

The FT did a good piece on the issue yesterday. In it, Santiago López, a Madrid-based bank analyst at Exane BNP Paribas, explained:

Some of the clients that have been restructured will eventually be able to pay back their debts. In many other cases the proverbial can has just been kicked down the road and we believe that banks will need significantly higher provisions to deal with restructured loans.

9.07am BST

Spanish bad loan data

The bad loans festering in Spain's financial sector swelled again in March, data just released by its central bank shows.

A total of €163.3bn of loans are now 'non-performing", the Bank of Spain reported. That pushes the bad loan ratio up to 10.47%, from 10.39% a month.

8.45am BST

The broader picture for Europe's car industry remains pretty tough this year — even if April's encouraging data does show that the sales decline is bottoming out.

Major manufacturers have suffered big losses in the region, and many assembly lines are running below full capacity. Last month alone, Ford reported that its European losses had tripled, while Volkswagen reported a 38% drop in earnings.

It's a long, long way back to the heady pre-crash days – if, indeed, such conditions can be repeated.

As Stephen Odell, head of Ford's European Operations, told the WSJ in an article published yesterday:

We are hopeful that we can see signs of troughing or plateauing during the course of this year but I'm not sure that we have seen it yet.

Updated at 8.46am BST

8.27am BST

The rise in new car registrations last month shows consumers are more optimistic about economic prospects, argues Gian Primo Quagliano, the head of automotive research company CSP in Bologna, Italy.

Quagliano told Bloomberg that recent talk of European leaders easing off on austerity in favour of growth-friendly measures is also helping:

The recovery of sales in Germany is positive and may be an indication that consumers are getting back into the market on signs that austerity in Europe may be close to an end

When the car market changes direction, the reason is never just related to technical calendar effects.

More here.

8.04am BST

Euro car sales post first increase since September 2011

Good morning, and welcome to our rolling coverage coverage of the Eurozone financial crisis, and other interesting developments across the global economy.

And for once, we can start with some encouraging economic news — European car sales have risen, breaking a downward trend that dates back to the end of September 2011.

Purchases of new cars across the European Union in April were 1.7% higher than a year ago, data from the European Automobile Manufacturers Association (ACEA) released this morning showed.

Rising demand from Germany (+3.8%), the UK (+14.8%) and — perhaps most surprisingly — Spain (+10.8%) led the way.

These graphs, comparing monthly sales to the previous year, shows how the long downturn has finally been broken.

European car sales to April 2013
Photograph: ACEA

ACEA's full report is here (pdf)

We need to be cautious about hanging out the bunting, though. There are three reasons to be cautious:

• There were another two working days in April 2013 – more opportunity to nip down to the showroom or haggle a credit agreement with the bank

• Demand for new cars continued sliding in two key economies at the heart of the crisis – France (-5.3%) and Italy (-10.8%).

• This small rally in April doesn't wipe away the disappointment of January, February and March. New car registrations over the first four months of the year are 7.1% lower than in 2012.

And as ACEA put it:

In absolute figures, it is the third lowest level of new registrations for a month of April.

Still, it's nice to start the blog with some upbeat data, especially from a sector that's been badly dented by Europe's economic troubles.

Reaction to follow…

Coming up today, the main political developments could some in Italy, where Enrico Letta's cabinet is meeting to discuss measures to revive its economy.

On the economics front, we have fresh eurozone construction data at 10am BST.

And in finance, the European Central Bank will release an update on how much money has been repaid by banks who borrowed from its huge liquidity injections (the LTRO programme).

I'll be tracking all the latest developments as usual.

Updated at 9.02am BST

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Bank of England raises growth forecasts. French economy shrinks 0.2% in first three months of 2013. Italy in longest recession on record. Germany barely grows. The eurozone economy contracts for another quarter by 0.2% q/q…

 


Powered by Guardian.co.ukThis article titled “Eurozone suffers its longest downturn ever as France sinks back into recession – as it happened” was written by Graeme Wearden, for theguardian.com on Wednesday 15th May 2013 15.49 UTC

5.47pm BST

And finally

That's all for today. Thanks for reading, and for all the great comments.

Just to recap the two main events of the day:

The eurozone is in its longest recession since it was created, after GDP fell by 0.2% in the first three months of 2012. Downturns in France, Italy, Spain and the Netherlands drove the downturn, while Germany grew by a meagre 0.1%.

Full story here: 1.19pm

How the events unfolded: from 6.44am

In the UK, the Bank of England declared that Britain's economy is on the road to a modest recovery. It raised its growth forecast for the first time since the financial crisis began, as Mervyn King marked his last Quarterly Inflation Report with an attack on the financial transaction tax.

See 10.36am onwards for highlights of the press conference

Thanks all, and goodnight. GW

5.23pm BST

The deepening eurozone recession didn't prevent Europe's stock markets closing higher, with the FTSE 100 sneaking up 7 points to a new five-and-a-half year high of 6693.

Here's the closing prices (and the latest from Wall Street, where the Dow and the S&P are up too)

Stock markets closing prices, May 15 2013
Photograph: Thomson Reuters

As Brenda Kelly, senior market strategist at IG Index, points out, the "yawning disconnect between stock markets and growth fundamentals" was on display again.

She predicts markets will probably be pushed higher by the promise of future central bank action:

Given that Mario Draghi is ready to act if necessary, the key upshot is that as long as the poor data continues to flow, central banks will keep flooding the markets with liquidity.

Hence more multi-year highs for many European benchmark indices are likely to materialise.

Updated at 5.27pm BST

5.13pm BST

FTT divisions

Sir Mervyn King's attack on the upcoming eurozone financial transaction tax has been welcomed by the CBI, but criticised by the Robin Hood campaign which has long fought for its introduction.

As reported at 11.50am, the outgoing governor of the Bank of England claimed that the FTT was a pretty bad idea, and one that little genuine suport within the European central banking world.

Matthew Fell, CBI director for competitive markets, agrees:

We agree with Sir Mervyn that a Financial Transaction Tax is a bad idea. It would harm growth, jobs and investment here in the UK and that’s why the Government was right to opt out of it in the first place.

If other countries want to press ahead with this ill-conceived tax then it should only impact on them.

The FTT tax will mean a small levy on all euro denominated transactions, and eleven countries have signed up. David Hillman, spokesperson for the Robin Hood Tax campaign,was unimpressed by King's comments:

Given the damage the Square Mile wreaked on the UK economy during his time in Threadneedle St, it's rather surprising that Mervyn King is still backing the interests of the City against those of the rest of us.

The fact is that 11 countries have had the courage to take on the lobbying power of the financial sector rather than letting it off scot-free as the UK is intent on doing.

Mervyn King himself has said that it's ordinary people who are paying the price of the financial crisis, yet now he's taking a sideways swipe at a proposal that could put that right.

4.35pm BST

Commission President Jose Manuel Barroso speaks during a joint press conference with French President Francois Hollande.
Commission President Jose Manuel Barroso speaks during today’s joint press conference with French president Francois Hollande. Photograph: JULIEN WARNAND/EPA

France's lurch back into recession today prompted EC president Jose Manuel Barroso to press Paris to speed up its economic reforms, at a press conference with president Francois Hollande.

Barroso warned that the French government needs to commit to new structural reforms in return for being given an extra two years to get its deficit in order.

Pointing to France's "the exorbitant weight of debt", Barroso declared that France must make up for two decades of lost economic competitiveness.

Both men said they agreed that growth must be a top priority (unfortunately, achieving it is rather harder)

Barroso also threw France a carrot, as Reuters reports:

In a gesture of support, Barroso also said the European Commission would not negotiate away France's "cultural exception" – a system of subsidies supporting its entertainment industry – in any future EU-U.S. free trade agreement.

Barroso said he sensed in Hollande a "genuine will" to push reforms but declined to say what recommendations the Commission would make on May 29 when it sets out its view on what France must achieve in return for the two-year deficit reprieve.

(ps: sorry about the slowdown in posting — a quick trip out of the office (!) to chat about the crisis).

French President Francois Hollande speaks during a joint press conference with EU Commission President Jose Manuel Barroso (not pictured), ahead of an international conference for the development of Mali, at EU headquarters in Brussels, Belgium, 15 May 2013.
French President Francois Hollande. Photograph: JULIEN WARNAND/EPA

Updated at 4.36pm BST

3.22pm BST

Italy’s new 30 year bond

Italy looks like it has been successful with a new €6bn 30 year bond, which will help the country extend the average maturity of its debt.

It booked more than €12.7bn of orders for the bond this morning and Annalisa Piazza at Newedge Strategy said:

The Italian Tesoro is now taking advantage of still favourable market conditions for ultra-long periphery debt and today's sale will help to increase the duration of the Italian debt after last year's considerable reduction.

2.30pm BST

US industrial output misses forecasts

Europe isn't the only place reporting bad economic data today. US industrial output fell by 0.5% in April, according to figures just released.

The fall was driven by a drop in utilities output, and also lower production from manufacturing firms.

Economists had expected a decline of just 0.2%.

2.24pm BST

Here's a video clip of Sir Mervyn King announcing that the Bank of England has raised its growth forecasts for the UK economy…

2.22pm BST

Over on the FT, Michael Steen has pulled together 'five quick takeaways' from today's GDP data.

They include: that the ECB was right to cut borrowing costs last week, that Germany exporters aren't as strong as expected, and that EC's growth forecasts may now be too optimistic.

2.14pm BST

Here's another view on today's eurozone GDP figures, from Tim Ohlenburg, senior economist at CEBR.

A big factor in the disappointing if predictable result is that the French economy again contracted by 0.2% in the first quarter of 2013. We expect that this situation will persists for a while and given the weight of France in Europe the rest of the currency union will be affected. The other major Eurozone economy, Germany, is estimated to have grown in Q1 2013, but at only 0.1% quarter on quarter. It, too, borders on the brink of a downturn. Finland, another nation considered part of the economically solid Eurozone core, also entered recession with a second consecutive quarter of negative growth.

A rare piece of good news in the latest Eurostat release came from Portugal, where the pace of output declines slowed from -1.8% in Q4 2012 to -0.3% in Q1 2013. Also, Austria narrowly avoided recession with stable GDP in Q1 after a fall at the end of 2012.

In terms of monetary policy, the latest GDP figures are unlikely to shift the stance of the European Central Bank significantly following its cut in the interest rate from 0.75% to 0.5%. A further reduction in interest rates is possible but unlikely at present. The purchase of government bonds in a quantitative easing-type policy will probably be reserved for a crisis situation in which the bond markets turn against a country such as Italy or Spain that is of systemic importance.

In sum, the Eurozone continues to struggle as the public and private sectors deleverage and structural reform continues slowly. For next year we expect the Eurozone’s GDP to remain roughly stable and further ahead slow growth still looms while internal devaluation hampers the economy in the periphery.

1.19pm BST

Lunchtime summary

The eurozone has slumped into its longest recession ever, after economic activity across the region fell for the sixth quarter in a row.

Economic output across the single currency area fell by 0.2% in the first three months of 2013, statistics body Eurostat reported today (see 10.10am).

France, Spain, Italy and the Netherlands all saw their economies shrink as the economic crisis in the eurozone continued to hit its largest economies.

Eurostat’s figures showed that the eurozone economy has now contracted by 1% over the last year, putting further pressure on leaders as unemployment climbs to new record highs.

The 0.2% contraction in the first quarter of 2012 was an improvement on the 0.6% drop recorded between October and December, but analysts warned that the eurozone’s economic outlook is darkening.

Stephen Lewis, chief economist at Monument Securities, commented:

What seems incontrovertible, on this evidence, is that the member-states of the euro zone are on the wrong track.

The costs of the zone’s one-size-fits-all strategy are becoming brutally apparent.

France was dragged back into recession by a 0.2% drop in GDP, announced on the first anniversary of Francois Hollande being sworn in as president (see 6.44am)

Pierre Moscovici, French finance minister, denied that Paris’s forecast of 0.1% growth this year was too optimistic. “I’m sticking to the figures,” Moscovici told reporters, adding that the EU must prioritise growth over tackling budget deficits.

Eurozone GDP
Photograph: Thomson Reuters (via the Financial Times)

There was also disappointment that Germany only eked out growth of 0.1%, worse than economists had expected. The Dutch economy shrank by 0.1%.

Nick Spiro of Spiro Sovereign Strategy was also concerned:

The bottom line is that both the German and French economies, which together account for half the eurozone’s output, are in the doldrums.

Add in the persistent recession in the Netherlands, which accounts for a further 6.5% of eurozone GDP, and the core and semi-core of the eurozone are in significantly worse shape than a year ago.

Italy’s new prime minister, Enrico Letta, was given an early reminder of the challenge he faces, with Italian GDP falling by 0.5%. Italy’s economy has now been shrinking for the last seven quarters, its longest recession since at least 1970.

Portugal's recession continues, with a 0.3% drop in GDP – a much smaller decline than the 1.8% slump recorded in the last quarter of 2012.

Beyond the eurozone, the Czech Republic suffered a 0.8% decline in GDP during the quarter. Eurostat’s figures also showed that the European Union shrank by 0.1% during the last quarter, despite the UK growing by 0.3%.
Figures released last week showed that Spain’s economy contracted by 0.5%.

……

Meanwhile, in the UK, the Bank of England has raised its growth forecasts for Britain's economic growth for the first time since the financial crisis began.

Sir Mervyn King, who steps down as governor this summer, said a modest recovery was in sight, but cautioned that the eurozone was a key risk.

King told reporters in London that:

This hasn’t been a typical recession and it won’t be a typical recovery. Nevertheless, a recovery is in sight.

King also attacked plans for a transaction tax in the eurozone, claiming that he wasn't anyone within the European central banking world who supported it.

You can track the highlights from the BoE press conference, from 10.36am.

Updated at 1.47pm BST

11.59am BST

Back to the eurozone recession, and this chart from Eurostat shows euro area GDP has been shrinking for the last six quarters:

Eurozone GDP, to Q1 2013
Euro area GDP (dark line), vs EU GDP (dotted line) and US GDP (light line)

A striking divergence from America over the last two years…

11.50am BST

Mervyn King attacks Europe’s transaction tax

Mervyn King, at his final inflation report
Photograph: Bloomberg

Sir Mervyn King has launched a strongly critical attack on Europe's plans for a financial transaction tax… saying that:

Within Europe, I can't find anyone in the central bank community who thinks it is a good idea.

He also claims that he has privately heard concerns about the levy on euro transactions from people who publicly support it.

Eleven eurozone countries are introducing the FTT, but it has been thown into some doubt by the UK government launching a legal challenge.

And the press conference then ends, with veteran hack Bill Keegan of the Observer thanking the Bank of England governor for his efforts at Threadneedle Street over the years. King looks terribly touched.

Updated at 4.49pm BST

11.39am BST

More from Larry:

King is clearly uncomfortable that bank rate has been 0.5% for past four years. He wants to get them back to more "normal and healthy" levels, by which he means around three points above inflation.

But he says that pushing rates up now would drive economy back into recession.

Markets think it will be 2016 before rates go above 1pc. King said could be sooner if economic outlook improves.

And asked about the impact on pensioners, King remarks that "as a pensioner myself, I understand totally why they are concerned".

11.34am BST

A Question of Sport

King declines to say whether the economy he is handing over to star signing Mark Carney is challenging for the Champions League, a mid table team or battling against relegation.

"I am very optimistic about the future", he tells our own Larry Elliott, adding that he sees a very successful season ahead.

11.31am BST

More highlights from Mervyn King's press conference:

King says the government has not given up on rebalancing economy. We have to do it, he says.

Recent performance of economy made worse by weak North Sea oil
production and poor performance of construction sector.

11.27am BST

On negative interest rates (under discussion at the European Central Bank for commercial bank desposits), King says that the financial system is better prepared to cope with such a move, but adds there are "good reasons" not to implement them in the UK.

11.24am BST

Sir Mervyn King plays down the suggestion that the UK and the IMF are at odds over the issue of George Osborne's fiscal plans:

Here's the key quote (via Reuters)

One of the issues that always comes up when discussing across the US or the IMF is that their automatic stabilisers are much, much weaker than ours, hence in order to have any flexibility they need to take discretionary fiscal action.

That's not true here. Our automatic stabilisers are very large.

So these things automatically occur and has had a big effect on the deficit. And the scale of it is much bigger, I think than the quibbling at the margins that seems to come out in the debate to which you refer.

11.06am BST

Our economics editor Larry Elliott gives some instant reaction to the quarterly inflation report:

Inflation is forecast to rise above 3% in June so when figures are released in July one of Mark Carney's first jobs may be to write a letter to George Osborne explaining why it is more than one percentage point above target.

Larry adds:

King seems quite relieved to be stepping down after the trials and tribulations of the last five years.

Updated at 11.23am BST

11.04am BST

Bank of England invites Slovenia to quit the eurozone

A moment of rare levity, when a journalist from Slovenia TV takes the microphone in a room dominated by the UK economics press.

"Welcome," says Sir Mervyn King, adding:

by all means think of joining the sterling area.

The invitation is politely declined. But has Sir Mervyn got demob happy?

(the context, of course, is that Slovenia is trying to avoid becoming the next member of the eurozone to seek a bailout)

Updated at 11.09am BST

11.00am BST

Richard Edgar of ITV News reminds the chancellor that inflation is rising four times faster than wages (see 9.40am)

Mervyn King denies that there's an easy answer, pointing out that the cost of living is being pushed up by a variety of factors – not all within his controls (oil prices, for example, which push up utility cossts

The only way we could bring inflation down would be to drive wages down.

There's no easy way through this, and it's silly to pretend there is, King adds.

10.55am BST

Next question, about Britain's record low borrowing costs (interest rates haev been just 0.5% for over four years). 

King warns that the return to a more normal world will be difficult, and could involve "asset price falls" as real interest rates rise.

10.52am BST

Did the Bank of England have enough discretion to control inflation during King's time, asks Stephanie Flanders of the BBC. After all, the UK government has announced plans to adjust its remit.

King denies that he needed more discretion, but says that what was "left hanging" in 1997 (when the Bank was handed control of UK interest rates) was flexibility.

What the chancellor is doing will not give us more room for maneuver, but will let us be more transparent over the discretion we are exercising.

Updated at 11.09am BST

10.48am BST

First question from Sky's Ed Conway: is the Bank of England worried that the government is fuelling an unsustainable housing boom through its new support for homebuyers?

Sir Mervyn King replies that a schem that increases the number of transactions is "helpful", but cautions that George Osborne's new "funding for lending" scheme is only temporary:

What is most important is that, when we get back to normality, we do not have a system of taxpayer guarantees for mortgages.

That, King adds, would be a very bad thing….

10.44am BST

King finishes by telling the media that after 89 quarterly inflation reports, it's time to hand over to "the next generation" (Canada's Mark Carney).

10.43am BST

The Bank of England has also predicted a faster fall in UK inflation, but still expects CIP to be above its 2% target for most of the next two years.

Here's the key quote from today's quarterly inflation report:

The economy is likely to see a modest and sustained recovery over the next three years… [but will] remain weak by historical standards.

And it also predicts growth of 0.5% in the current quarter, up from 0.3% in the first three months.

Sir Mervyn King also warned that monetary policy cannot solve all the world's problems, and repeats a familiar theme – that the global economy must be rebalanced.

10.36am BST

BoE raises growth forecasts

The Bank of England has raised its forecast for UK GDP growth, in its new quarterly inflation report.

Sir Mervyn King, speaking now, says that this is the first time he's been able to predict a "brighter economic outlook" since the financial crisis began.

The BoE governor, who steps down this summer, pointed to the 0.3% rise in GDP in Q1 2013.

A recovery is in sight.

But King adds, though, that the main downside risk to UK GDP comes from overseas, and singles out the eurozone.

More to follow

10.32am BST

About that French triple-dip….

Correction: France is not, it appears, actually in a triple-dip recession.

It's certainly back in recession, but its now clear that previous data has been revised, wiping out an earlier contraction in the first half of 2012.

French GDP
Photograph: CNBC

As CNBC explains, the flash estimates for the first and second quarter of 2012 were -0.1 percent before being adjusted up to zero percent.

This seemed to catch a lot of people out. Apologies

More here: Le Big Debate: France Triple-Dip or Not?

10.20am BST

Greece and Cyprus also kept shrinking in the first quarter of the year:

10.10am BST

Eurozone recession in full

Here's the full details.

The eurozone economy shrank by 0.2% in the first three months of this year, as its recession dragged on — dragged down by contractions in France, Spain, Italy, and the Netherlands.

The wider EU economy shrank by 0.1% during the quarter.

This follows a 0.6% drop in eurozone GDP in the last quarter of 2012, and a 0.5% fall acoss the EU. So, the pace of decline is slowing.

But the data means the the eurozone economy is 1% smaller than a year ago, while EU GDP is 0.7% smaller.

The full details, from Eurostat, are here

Updated at 10.10am BST

10.01am BST

Eurozone still in recession

Breaking News: The eurozone recession has deepened, with a 0.2% drop in GDP in the first three months of this year.

9.59am BST

Greek bond yields tumbling

Amid the GDP gloom, Greek bonds are rallying in value this morning. This comes after rating agency Fitch raised its credit rating last night to B-, having concluded that the risk of the country exiting the euro has diminished.

The yield (measure of borrowing costs) on Greek 10-year bonds has tumbled by a whole percentage point to 8.34%. That's a really big move, as the Financial Times's Chris Adams breathlessly points out:

Last summer, Greek 10-year bonds were yielding 30% – so any fund manager who bought then is sitting on quite a profit.

But for Greeks, the economic position is still very, very tough.

As Yiannis Baboulias wrote in the New Statesman last Friday:

The government's decision to increase taxation on heating oil did not only leave many Greeks unable to heat their homes last winter, but also caused general revenue from taxes to drop by €291m, after consumption fell by 68.7%. Since the beginning of the year, due to this and other tax hikes, tax revenues were lower than the targets set by the government and the Troika in the first three months of 2013.

The most terrifying prospect Greece faces in the next few months though, is the devastating unemployment. Overall unemployment in Greece is now 27% while it goes up to 28.7% in certain regions.

9.52am BST

Graph: European GDP

Here's a great graph, showing how Europe's five largest economies have performed since the financial crisis began.

European GDP since 2008
Photograph: Markit

Germany leading the recovery, France stagnating for more than two years, the UK struggling to grow, and deep declines in Spain and Italy….

9.40am BST

UK unemployment data released

Britain's unemployment rate has fallen to 7.8% in the three months to March, down from 7.9% a month ago*.

The Office for National Statistics also reported a drop in the UK claimant count also dropped, with 7,500 fewer people claiming jobless benefit in April.

* – that's 7.9% in the three months to February. Today's data is also a rise compared to the 7.7% in the October-December period.

But the data also showed that wages are lagging well behind the rising cost of living in the UK. Average weekly earnings rose by just 0.8% in the first quarter of the year – the lowest on record. UK inflation is currently running at 2.7%.

Something for the Bank of England governor, Sir Mervyn King, to discuss at his final press conference at 10.30am….

Joe Bond, vice president of trading at City firm Abshire Smith, said the wage data was awful.

Updated at 11.21am BST

9.26am BST

Continental Europe lagging UK and US

The British economy, for once, is outshining its European neighbours.

We learned two weeks ago that UK GDP grew by 0.3% in the first quarter of this year, avoiding another recession. That performance looks even more creditable now, given the economic traumas across the Channel.

But America did better still, growing around 0.6% on a quarterly basis.

Updated at 9.45am BST

9.14am BST

With most eurozone countries having now reported their GDP data, it looks very likely that the region is still in recession.

Linda Yueh, the BBC's chief business correspondent, points out that Spain's economy is also still shrinking (its GDP data was released last week)

9.03am BST

Italy suffering longest recession on record

Italy is now in its longest recession since at least 1970, after its economy shrank again.

Italian GDP fell by 0.5% in the first quarter of this year, meaning its economy contracted by 2.3% over the last 12 months.

Italy has now been shrinking for seven quarters in a row — the longest recession since quarterly records began 43 years ago (according to Reuters).

Updated at 9.07am BST

9.00am BST

The French recession (see 6.44am) could deepen the split between Paris and Berlin, Paul Donovan of UBS has predicted.

He believes Francois Hollande could now renew his push for Europe to ease its fiscal plans:

The worst of times seem in evidence in the Euro area, where French GDP fell 0.2% on the quarter (the third time in four years France has had two consecutive quarters negative GDP). The real threat here is this spurs the French government to push for policies that are odds with those of Germany.

France has already been promised another two years in which to bring its deficit below the 3% target.

8.41am BST

Netherlands still in recession

The Dutch economy has contracted again, with GDP falling by 0.1% in the first quarter of this year.

The Netherlands entered recession three months ago, with unemployment rising and its housing market bubble having burst.

Once one of the strongest-loooking members of the eurozone, the Netherlands is now feeling the full force of the region's decline (there's a good piece on Spiegel here).

8.34am BST

Hungary return to growth

Hungary has bucked the trend this morning, roaring back to growth with a 0.7% rise in GDP in January-March.

Ironic, given Budapest has been at war with the European Union over the last year:

And as Bloomberg explains, the Hungarian government made a series of spending cuts last year and imposed high banking taxes:

Prime minister Viktor Orban sacrificed growth last year to reduce the budget gap and remove the threat of cuts in European Union funding less than a year before parliamentary elections.

The government boosted revenue from Europe’s highest bank levy and taxes on energy, retail and telecommunication industries, which damaged lending and investments.

Updated at 8.49am BST

8.18am BST

Czech Republic GDP slides as recession continues

Gloomy data from the Czech Republic this morning — GDP shrank by 0.8% in Q1 2013. That follows a 0.2% contraction in Q4 2012.

The Czech Republic has now been in recession for more than a year…

Updated at 8.46am BST

8.11am BST

More European GDP data hits the wires….

Austria's economy flatlined in the first three months of 2013. Data just released showed that its GDP was unchanged at 0.0%. That follows a 0.2% decline in the last quarter of 2012.

8.07am BST

European markets open lower

European stock markets have fallen in early trading. The French CAC shed 0.4%, the Italian FTSE MIB lost 0.45% and the Spanish IBEX fell 0.3%.In London the FTSE 100 is down just 4 points.

7.58am BST

France's economy is now 0.4% smaller than a year ago.

Here's how its economic outlook fared over the last four quarters.

Q1 2013: -0.2% quarter-on-quarter

Q4 2012: -0.2% q/q

Q3: 2012: +0.1% q/q

Q2: 2012: -0.1% q/q

Updated at 7.58am BST

7.39am BST

Will Eurozone recession continue?

We find out at 10am BST if the eurozone is still in recession, when overall GDP for the region is published.

Economists had expected a small contraction, of 0.1%. Today's weak data from France (6.44am) and Germany (7.06am) suggests the true figures might be worse…

If so, expect fresh calls for Eurozone leaders to adopt new growth measures, as a matter of urgency,

Michael Hewson of CMC Markets commented:

Today’s latest Q1 GDP numbers are expected to show that the European economy is far from on the right track as EU leaders continue to argue about the merits or otherwise of banking union while economic growth continues to remain elusive and unemployment continues to explode higher, especially for those under 25.

Updated at 7.40am BST

7.15am BST

Triple-dip recession for France

This is the third time France has fallen into recession since the financial crisis began, my colleague Angelique Chrisafis flags up.

It's an ignominious way for François Hollande to mark his first anniversary of being sworn in power, as the BBC's Gavin Hewitt flags up:

Updated at 7.19am BST

7.06am BST

German GDP misses forecasts

Disappointing GDP data from Germany, which posted growth of just 0.1% in the first quarter of 2013.

That's rather weaker than the 0.3% growth expected. 

The German contraction in the fourth quarter of 2012 has also been revised downwards to -0.7% (from -0.6%).

So the eurozone's largest economy has only just struggled back from its winter torpour.

7.02am BST

This graph shows how the French economy has struggled since the start of 2011.

French GDP
French GDP Photograph: /INSEE

That's from INSEE, the French statistics agency, which announced this morning that France was in recession. INSEE reported that manufacturing output was at a "standstill", while household expenditure was "sluggish"

Here's the full statement.

Updated at 4.44pm BST

6.44am BST

France back in recession

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

France has fallen into recession, as Europe's second largest economy is dragged deeper into the eurozone slump.

Data just released showed that its economy shrank by 0.2% in the first three months of 2013, following a 0.2% contraction at the end of last year. Economists had expected a 0.1% drop.

The figures pile more pressure on François Hollande, who already faces falling public support, record unemployment and pressure from Brussels to reform the French economy.

We'll find out this morning if the eurozone itself is still in recession, with GDP data from several other countries due this morning – including Germany in a few minutes.

it's going to be a busy day… with UK unemployment at 9.30am and the Bank of England's quarterly inflation report — Sir Mervyn King's last one — at 10.30am.

I'll be tracking all the news and reaction through the day…

Updated at 4.44pm 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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The Eurogroup concludes that the necessary elements are in place for Member States to finalize the procedures required for the approval of the next EFSF instalment, which amounts to €7.5 bn. ESM agrees €3bn for Cypriot bailout…

 


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9.14pm BST

Closing summary

Time to wrap up for the day.

To catch up on tonight's eurogroup press conference, see 7.36pm onwards for full highlights.

Here's a closing summary.

Greece and Cyprus are both receiving their next aid payments, in a move that removes the danger of either country running short of cash in the next few weeks.

After a meeting in Brussels this afternoon, the Eurogroup of finance ministers announced that Greece has done enough to quality for its next loans. €4.3bn will be handed over immediately, and the rest in June when a few outstanding issues have been addressed. (see 7.43pm for details)

Cyprus was awarded its first aid tranche under its bailout agreement earlier this afternoon, by the European Stability Mechanism. The Nicosia government gets €2bn immediately, and a further €1bn in June (see 3.30pm).

The Eurogroup also warned Slovenia that it must do more to reform its economy and strengthen its banks. (see 7.48pm)

In Greece… there were protests tonight over the government's attempts to stop a teachers strike. See 5.24pm onwards.

And grim construction data showed that the number of new building permits in Greece has almost halved, year-on-year. See 11.53am

The prime ministers of Spain and Portugal challenged Europe to agree banking union quickly, and called for more help to address their unemployment crises. See 5.58pm for a full report.

• Israel's central bank became the latest to cut interest rates, and also launched a programme to stop the shekel appreciating. See 1.50pm

A survey by Fitch found that a majority of investors believe financial markets are too calm, or too bullish, as the eurozone crisis has further to run. See 12.29pm

Italy held a succesful bond auction (see 11.31am onwards).

And another ECB policymaker hinted at negative interest rates for bank deposits (see 10.13am).

Thanks for reading, and for all the comments as ever. I'll be back tomorrow morning Goodnight! GW

Updated at 9.14pm BST

8.35pm BST

Not the most dramatic eurogroup meeting since the financial crisis struck…. and that's not a bad thing either.

8.27pm BST

It’s over

And that's the end of the eurogroup press conference.

Updated at 8.27pm BST

8.27pm BST

Asked about plans for eurozone banking reform, Jeroen Dijsselbloem repeats his goal of agreeing rules for bank recapitalisaion by the end of next month.

That would help pave the way to a single supervisory mechanism for the euro financial sector, from the summer of 2014.

8.24pm BST

Rehn: Greece could beat forecasts

A question on Greece, and the news today that the Troika's latest assessment shows that further measures may be needed to meet its targets in 2015 and 2016 (as covered at 2.25pm)

Rehn (again) says it is too early to say if additional measures needed, because Greek economic growth could be higher than expected.

OK, but since the financial crisis began Greece has consistently missed its forecasts to the downside….

Updated at 8.25pm BST

8.19pm BST

Olli Rehn at the Eurogroup, May 13 2013
Olli Rehn at tonight’s Eurogroup press conference.

On Portugal… Olli Rehn (who's doing the bulk of the talking tonight) says that its reform programme is "by and large" on track, and that political agreement has been reached on the seventh review of the Portuguese bailout program.

8.15pm BST

A Spanish journalist asks about the unemployment crisis raging in his country. Olli Rehn replies that the jobless crisis must be addressed, but puts part of the blame on "large and unsustainable macroeconomic balances" within the Spanish economy.

8.13pm BST

Rehn defends legality of banking union

Matina Stevis of the Wall Street Journal/Dow Jones asks about another key issue, the legality (or not) of introducing banking union and a single resolution scheme under the current EU treaties.

In reply, Jeroen Dijsselbloem admits that there are 'different opinions' over the important question of whether treaty change is needed. That shouldn't prevent the eurozone moving "far and as fast as we can", he adds.

And Olli Rehn says he's confident that all the elements of a banking union can be decided on the basis of the current treaty. But he then adds that work is continuing on the precise legal basis of a single resolution mechanism.

8.05pm BST

Rehn: We’d like to lift capital controls…

How long will Cyprus suffer capital controls?

Olli Rehn says that the eurozone would like to see the Cyprus government relax capital controls "for the point of view of economic recovery".

However, this could only happen when it was "safe, from the point of view of capital outflows".

UPDATE: To clarify, the capital controls are an issue for the Cyprus government, not the eurozone. Rehn's point is that the eurozone would like them lifted, but only when the moment is right

Klaus Regling of the ESM, who is also taking part in the press conference, denies that the Cyprus crisis has caused alarm across the eurozone. He points to a succesful Portuguese debt auction last week.

Updated at 8.38pm BST

7.58pm BST

Question time….

Asked about Slovenia's efforts to avoid a bailout, Olli Rehn says it's too early to say whether the country's reform programme is sufficient and credible.

On Greece, Rehn say the next 'review mission' will take place in the coming weeks. He also explains that Athens is expected to meet the remaining 'prior actions' this week, to ease the way for its €2.3bn aid payment in June.

Updated at 7.58pm BST

7.55pm BST

Now Olli Rehn, European Commissioner for monetary union, speaks — saying it's important the eurozone leaders work "intensively" to reach a solution on rules for bank recapitalisation by June.

Rehn also warned that Europe's banking sector remained a drag on its economy, as bad debts have not been recognised and cleaned-up – as happened in the US.

7.48pm BST

Slovenia also gets a rebuke, with Dijsselbloem saying the Eurogroup agreed that the Slovenian government must take swift action to reform its economy and restore trust in its banks.

Not sure that will exactly boster confidence in the Slovenian system at this time….

And nor is Lorcan Roche Kelly, chief Europe strategist at Trend Macrolytics:

Updated at 7.49pm BST

7.47pm BST

There's also a seperate statement on Cyprus – online here.

7.45pm BST

On Cyprus, Jeroen Dijsselbloem says that the Cypriot government has delivered on its bailout promises.

He welcomed the news today that the European Stability Mechanism has issued €2bn to Cyprus today (see 3.30pm), with another €1bn on the way.

Updated at 8.00pm BST

7.43pm BST

Eurogroup: Greece should get its next aid tranche

The Eurogroup has issued a statement on Greece – it's online here.

It confirms that Greece is ready to get €4.2bn of aid immediately, and a further €3.3bn €2.3bn once remaining measure have been taken (as Jeroen Dijsselbloem outlined at 7.40pm).

Here's the key statement:

The Eurogroup concludes that the necessary elements are in place for Member States to finalise the relevant national procedures required for the approval of the next EFSF instalment, which amounts to €7.5 bn.

The disbursement will take place in two sub-tranches. A first sub-tranche of €4.2 bn will be approved by the EWG and the EFSF Board of Directors in the following days, following the completion of the national procedures and the full implementation of the prior actions.

The disbursement of the second sub-tranche will be made in June 2013, linked to the implementation of the MoU milestones as agreed between Greece and the Troika.

Updated at 9.01pm BST

7.40pm BST

Dijsselbloem: A few priorities for Greece

On Greece, Dijsselbloem says that Greece has been making tremendous efforts, and claimed those efforts are now bearing results.

The Eurogroup has identified three priorities for Greece before it gets its next aid tranche — reforming its tax collection, opening up some professions, and reforming its public services.

Dijsselbloem says these remaining hurdles can be addressed in the coming days.

7.36pm BST

Eurogroup press conference begins.

The press conference is underway!

Jeroen Dijsselbloem says the Eurogroup considered the latest Spring forecasts from the EC (which warned of a deeper recession this year).

Dijsselbloem said Europe was "Not out of the woods", but was paving the way to sustainable growth and jobs.

Dijsselbloem added that the Eurogroup had welcomed the new Italian finance minister, Fabrizio Saccomanni, and urged him to deliver the 'ambitious structual reform agenda' needed to meet its targets.

Updated at 7.36pm BST

7.20pm BST

Tonight's press conference in Brussels will be streamed online here , and should start shortly.

7.14pm BST

Something of a light-hearted atmosphere in Brussels this evening – a sign that the eurozone crisis is in a calmer patch:

7.02pm BST

Word from Brussels that the eurogroup meeting has ended, and journalists are heading for the press conference room…..

#cancelsplantogohome

6.35pm BST

Greece's Kathimerini also reckons that the eurogroup ministers have agreed to hand over €7.5bn of loans to Athens, writing:

Although the meeting of eurozone finance ministers was continuing on Monday, reliable sources told Kathimerini that the European Financial Stability Facility (EFSF) is due to convene on Wednesday to approve the transfer of €4.bn. The money is expected to be disbursed on Friday.

Following on from this, if Greece completes the "milestones" it has agreed for May, then 3.3 billion euros will be released in June. A troika review will not be needed for this disbursement, which will be agreed by the Euro Working Group.

6.17pm BST

Greece's Capital.gr is reporting tonight that Eurogroup ministers have, as expected, decided to approve its next aid payment, worth €7.5bn.

The story's online here (in Greek). It says that Greek officials believe €4.2bn of loans will be handed over immediately, followed by a second tranche of €3.3bn in June once various structural measures are agreed .

Nothing official yet, though.

5.58pm BST

Spain and Portugal demand full banking union

Spain's Prime Minister Mariano Rajoy, right, and Portugal's Prime Minister Pedro Passos Coelho, left, gesture during a press conference at the Moncloa Palace, in Madrid, Monday, May 13, 2013.
Spain’s Prime Minister Mariano Rajoy, right, and Portugal’s Prime Minister Pedro Passos Coelho, left, at today’s press conference. Photograph: Andres Kudacki/AP

Earlier today the prime ministers of Spain and Portugal put more pressure on the eurozone to agree full eurozone banking union, and called for more help to address the tragedy of youth unemployment in their countries.

In the face of apparent foot-dragging from Germany (see 3.04pm), Spain's Mariano Rajoy and Portugual's Pedro Passos Coelho were united, at the Iberian Summit in Madrid.

AP has the details:

The leaders of Spain and Portugal on Monday demanded that the 17-nation eurozone speed up efforts to create a banking union and complained that credit is frozen in their countries, preventing economic growth and crucial job creation.

Many banks are lending at relatively high rates because they are worried about the weak economy. Those higher borrowing rates are making it difficult for households and companies to spend and invest.

"The money from the banking system isn't getting to the businesses or into the economy," Portugal's Pedro Coelho said after meeting with Spanish Prime Minister Mariano Rajoy.

Their bilateral government summit in Madrid came as European finance ministers were gathering in Brussels to discuss the continent's financial crisis.

Both Rajoy and Passos Coelho called on the European Union to move swiftly to create a regional banking union and to slow down budget cuts to help the economy grow.

"Investment is the only way to create jobs," Passos Coelho said. "If there's no financing, it'll be very hard for companies to grow and build up their business."

Spain has been in recession for most of the past four years and has a record 27.2 percent unemployment rate. Portugal, with a 17.7 percent jobless rate, is one of four eurozone countries to have received a sovereign bailout.

Both leaders said that more must also be done to reduce the crushing unemployment rates, which are particularly high for young people.

Portuguese Prime Minister Passos Coelho (L) and Spanish Prime Minister Mariano Rajoy (R) give a press conference at the Moncloa palace in Madrid on May 13, 2013.
Photograph: PIERRE-PHILIPPE MARCOU/AFP/Getty Images

Updated at 6.05pm BST

5.37pm BST

Protest marches are also taking place in Athens and Thessaloniki tonight, against the Greek government's attempts to prevent teachers holding a strike this Friday (as explained at 5.24pm)

Theodora Oikonomides, who blogs/tweets as the Irate Greek, is collecting photos from the scene on Twitter:

5.24pm BST

Strike called in Greece tomorrow over teachers’ protests

Over in Greece, tensions are rising between protesting schoolteachers and the government ahead of a planned strike later this week.

Our correspondent Helena Smith reports:

Piling on the pressure, the civil servants union ADEDY has now announced that it will stage a 24-hour strike Tuesday in a show of solidarity for school teachers. The walk-out follows the government’s decision to issue civil mobilization orders to prevent high school teachers from staging industrial action when students begin sitting annual exams on May 17.

 “With this action we want to send a strong message to the government that we will not allow public services to be dismantled, that we will not allow the country's constitution to be circumvented and the constitutional right of going on strike to be annulled,” said Adedy’s president Kostas Tsikrikas.

The union, however, stopped short of endorsing the strike action during the exam period despite agreeing that internationally-mandated austerity measures – including pay cuts and job dismissals — are “barbaric and unfair”.

 It is the third time in less than a year that prime minister Antonis Samaras’ governing coalition has resorted to the draconian measure of forcibly returning strikers to work.

Helena adds:

 Throughout the day, the rthetoric on all sides has been racheted up with Olme, the 88,000-strong secondary school teachers union, theatening to haul the government before Greece’s highest court, the council of state, if it dares to stop them from exerting their “sacred right” of walking off the job.

The sector is particularly enraged that school teachers will be amongst the first to be dismissed from posts under EU-IMF pressure to streamline the bloated civil service.

“We will also denounce Greece before European organisations for the violation of constitutional rights. They are mobilizing us with a law that was drafted to be used at times of war or natural disasters,” said Nikos Papachristos, the president of Olme. 

 Admitting that the mobilization order was “very hard” the government spokesman Simos Kedikogloyou said there was no going back. “The stike is tountamount to blackmailing society in a way that society can no longer accepted,” he said this morning.

Updated at 5.26pm BST

5.20pm BST

FTSE 100 extends winning streak

The FTSE 100 has closed up 6 points tonight. That's its eighth day of gains in a row, the longest 'winning streak' since June 2011 (my colleague Nick Fletcher points out).

it's been a quiet day generally, with the Spanish IBEX, Italian FTSE MIB and French CAC losing ground, and the German DAX little changed.

Stock markets closing prices, May 13 2013
Tonight’s stock markets closing prices, via Thomson Reuters

Chris Beauchamp, market analyst at IG, said traders were in subdued mood as they pondered how, and when, the US Federal Reserve might begin slowing its quantitative easing programme.

This debate was prompted by an article in the Wall Street Journal which said Fed officials planned to stop bond purchases in "careful and potentially halting steps".

Beauchamp commented:

It is only to be expected that the world’s most powerful central bank has begun to at least think about an exit from stimulus. Indeed, it would be more worrying if it hadn’t started to ponder how to wind down its unprecedented market support programme. Any withdrawal from stimulus will be a game of ‘Grandmother’s Footsteps’; i.e. slow and measured, not an ignominious run for the door.

This tweet sums up the Fed's 'dilemma':

4.29pm BST

Photos: Smiles at the eurogroup

Just received some photos from the eurogroup meeting, showing finance ministers in cheery mood as the gathering got underway.

(L-R) Eurogroup chairman Jeroen Dijsselbloem, Cyprus' Finance Minister Harris Georgiades and Italy's Economy Minister Fabrizio Saccomanni attend an euro zone finance ministers meeting in Brussels May 13, 2013.
From left: Eurogroup chairman Jeroen Dijsselbloem, Cyprus’ Finance Minister Harris Georgiades and Italy’s Economy Minister Fabrizio Saccomanni. Photograph: FRANCOIS LENOIR/REUTERS
Eurogroup chairman Jeroen Dijsselbloem, Greece's Finance Minister Yannis Stournaras, European Economic and Monetary Affairs Commissioner Olli Rehn and Ireland's Finance Minister Michael Noonan attend an euro zone finance ministers meeting in Brussels May 13, 2013
From left: Eurogroup chairman Jeroen Dijsselbloem, Greece’s Finance Minister Yannis Stournaras, European Economic and Monetary Affairs Commissioner Olli Rehn and Ireland’s Finance Minister Michael Noonan. Photograph: FRANCOIS LENOIR/REUTERS

Finland's Finance Minister Jutta Urpilainen and the new Cyprus finance minister, Haris Georgiades, also chatted before the meeting got underway:

Finland's Finance Minister Jutta Urpilainen, left, talks with the Cyprus' Finance Minister Haris Georgiades at the start of an Eurogroup meeting at the EU Council in Brussels on Monday, May 13, 2013. (AP Photo/Geert Vanden Wijngaert)
Photograph: Geert Vanden Wijngaert/AP

3.30pm BST

Green light for Cyprus’s first aid tranche

Cyprus's first aid payment has been officially approved by the European Stability Mechanism, the unit responsible for providing funding for euro-area bailouts.

The Board of Directors of the European Stability Mechanism (ESM) announced in the last few minutes that they have approved the Financial Assistance Facility Agreement for Cyprus.

The ESM is now transferring €2bn to Nicosia immediately, with another €1bn due by the end of June.

Klaus Regling, managing director of the ESM, announced:

The loans granted by the ESM help to maintain financial stability in the euro area and buy time for Cyprus.

This time enables Cyprus to undertake the reforms necessary to rebuild its economy on a sustainable basis.

The ESM's decision means there's no danger of Cyprus running out of funding in the short term. It is due to receive a total of €10bn of external loans by early 2016, under the bailout deal agreed in March.

The full press release is here: ESM disburses the first tranche of financial assistance to Cypru

And there are more details of the bailout here: FAQ: Financial Assistance for Cyprus

Updated at 3.39pm BST

3.12pm BST

Peter Spiegel, the Financial Times's Brussels bureau chief, fears that tonight's eurogroup meeting could be a little light on hard news….

Updated at 4.08pm BST

3.06pm BST

It appears that Germany's finance minister wasn't too keen to answer questions abotu tax evasion as he arrived for the eurogroup… at least from the Anglo-Saxon contingent.

Juergen Baetz, AP's man in Brussels, reports:

3.04pm BST

Dijsselbloem: banking union isn’t in trouble

Jeroen Dijsselbloem, head of the eurogroup, has tried to calm concerns that Europe's plans for banking union are unravelling.

Dijsselbloem told reporters outside the Justus Lipsius building that progress can be made without leaders deciding whether EU treaties would need rewriting.

He made the comments amid concern that a single resolution scheme – which outlines how a failed bank is handled – cannot be set up by 2014, as planned, because it isn't legal under current treaties. Germany, for one, fears that changing the legislation will be lengthy and tricky

Dijsselbloem said:

Many of the building blocks for the banking union can be put in place. The issue of the treaty change can be addressed later on….

I think the Germans are putting forward understandable questions, which will have to be dealt with. But I don't see why that should stop us making progress on banking union.

2.25pm BST

Troika: Greek privatisation process too slow

Reuters has got hold of a draft copy of the Troika's latest assessment of Greece, following their recent visit.

No major shocks… international lenders concluded that Greece is on track to hit its targets this year and in 2014, but warns it will struggle to fully return to te financal markets after that date.

The Troika also chides Athens for being too slow to privatise state assets….

Here's Reuters' early take:

Greece is set to meet its budget targets this year and next but must step up privatisations and public sector reform, the country's international lenders said in a draft report obtained by Reuters on Monday.

The report by the European Union and the International Monetary Fund assessing the country's progress in meeting its bailout goals, said the country's privatisation revenue target had been lowered for 2013 to €2bn (.59 billion) from €2.6bn euros.

"While progress has been made in preparing assets for privatisation, the overall speed of the privatisation process remains unsatisfactory," said the report.

The document adds to evidence that the debt-laden country still faces big hurdles to standing on its own feet, despite the fiscal progress made by its coalition government and about 200 billion euros in rescue loans it has obtained from the EU/IMF since mid-2010.

Even though Athens' overall debt outlook remains unchanged as it overachieves on budget cuts, Greece would take several years to fully return to capital markets once funding from the bailout programme ends in 2014, the report said.

Updated at 2.34pm BST

2.25pm BST

Why the Bank of Israel acted

The Bank of Israel's statement accompanying today's surprise interest rate cut is online here: The Bank of Israel reduces the interest rate by 0.25% to 1.5 %.

Here's how it justified the move (taken two weeks before its next scheduled meeting).

  • The appreciation trend of the shekel continues. In terms of the effective exchange rate, the shekel has appreciated by 2.4% in the past month, and by 5.4% in the past 3 months. The shekel’s strength against the dollar and the euro during these periods stood out markedly in comparison with other currencies’ movements vis-à-vis the dollar and euro. The appreciation trend was affected by, among other things, the beginning of natural gas production from the Tamar gas field, the interest rate reductions by central banks worldwide, notably the ECB, and the continued quantitative easing programs in several major economies around the world.
  • Forecasts of global growth, in particular projections regarding Europe and China, have recently been revised downward. This moderation is expected to have an effect on Israel’s economy.

The move caused some chatter in the City:

1.50pm BST

Israel in surprise rate cut

The Bank of Israel has joined the currency wars by cutting interest rates, and announcing a new programme to prevent the shekel's value rising too high.

In an unexpected, unscheduled move, the Bank of Israel cut its key lending rate by a quarter of one percent, to 1.25%.

It also declared it would intervene in the foreign exchange markets, by buying .1bn of other currencies by the end of 2013. It took the move because:

[the shekel] stood out markedly in comparison with other currencies' movements vis-à-vis the dollar and euro.

Another volley in the battle to devalue currencies….

Updated at 1.52pm BST

1.24pm BST

G8 could gee-up Fermanagh

Over in Northern Ireland, there is optimism that next month's G8 meeting will hand a £40m stimulus to the local economy in Enniskillen, County Fermanagh.

Our correspondent Henry McDonald explains:

While it is unclear if David Cameran, Barrack Obama, Vladimir Putin and the rest of the G8 can come up with plans to boost the global economy, the summit will at least generate £40 million of extra business in Northern Ireland.

According to research published today by Barclay's Bank and the University of Ulster, 85% of enterprises in Fermanagh believing holding the summit in the Irish border region will be good for them.

The report also found there could be a longer term boost for tourism and foreign investment as the lakeland county gets a chance to show off its stunning scenery to the entire planet next month.

1.09pm BST

Eurozone finance ministers have begun arriving in Brussels for this afternoon's meeting.

Austria's Maria Fekter is there, but swept past the assembled press pack without giving a tasty soundbite.

12.54pm BST

Interesting graph here, showing how bad debts have been rising alarmingly in weaker members of the eurozone since the crisis began:

Those 'non-performing loans' could force euro banks to seek new capital, especially once eurozone banking supervision is agreed this summer (when the ECB will take responsibility for the sector)…

12.29pm BST

Fitch survey: Eurozone crisis ain’t over

The eurozone financial crisis is not over, according to a majority of clients surveyed by ratings agency Fitch.

Fitch asked European fund managers (with €8.6trn of assets between them) whether the current buoyant financial markets reflected the reality of the situation.

It found that 41% reckoned the worst of the crisis is over due to strong support from the ECB and policy makers.

The remainder were split between:

29% who feel that this is a short-lived period of market calm;

30% who said markets are irrationally exuberant, ignoring the weak economic outlook for Europe.

That suggests the recent market rally could unwind, as Fitch warned:

If the latter is not validated by economic stabilisation and progress towards banking union, the danger is that market volatility will return with a vengeance over the summer, as it did in 2012 and 2011.

Fitch also found that only 9% of respondents ranked inflation as a high risk, versus 29% who regarded deflation as a major concern risk. Fears that loose, unconventional monetary policy from the world's central banks would send prices spiraling have eased…

For more on the inflation issue, check out these two blog posts:

• Mark Dow: There is zero correlation between the Fed printing and the money supply. Deal with it.

• @pawelmorski: Loose Money: Stop Us Before We Kill Again

11.53am BST

Greek construction output plunges

Greek building activity, Febuary 2013 vs 2012
Construction activity in many Greek regions has shrunk drastically. Photograph: ELSTAT

Dire construction data from Greece this morning. The number of permits issued to build new buildings tumbled by 42.9% year-on-year in February.

Just 1,240 new permits were awarded to builders during the month, down from 2,27 in February 2012. In volume terms, activity has almost halved.

It's another sign of the damage caused to Greece's economy, along with record unemployment and steadily shinking retail sales.

Economist Shaun Richards has written a blogpost today, outlining how the Greek economic crisis has been far worse than the Troika anticipated:

We are left three years after the bailout of Greece with shock and awe at the economic destruction that has been inflicted on Greece. Even the rose-tinted forecasts of the European Commission predict that her economy will shrink by 4.2% this year. Every time we see a number which shows a glimmer of hope we find another like todays truly dreadful construction numbers to shatter it.

Again and again we are told that reovery is “just around the corner” as we discover that like on a Roman road there are no corners in sight. I think that those responsible for this should be called to account for their actions. But sadly I see a world where one of them -Christine Lagarde- was elevated to the role of Manging Director of the IMF which can only be a sad indictment of these times.

Please remember this when it is presented as a success later that the Greek people will have another 7.5 billion Euros added to their debts by the end of June.

More here: Three years after the bailout of Greece the economy is still collapsing

Updated at 11.53am BST

11.26am BST

Italian bond auction reaction

Here's early reaction to the Italian debt sale (see 10.31am) from sovereign bond expert Nick Spiro, of Spiro Sovereign Strategy.

Spiro says the auction was 'solid', but warns that the market in bonds issued by Italy and Spain et al may be heading for turbulent times, eventually….

1. Sentiment towards eurozone peripheral sovereign debt remains remarkably benign despite the severity of the economic downturns across the region and the recent sell-off in core government bond markets. Central bank policy action continues to hold down Spanish and Italian borrowing costs even though the sustainability of the rally is being increasingly called into question. Despite evident tensions within Mr Letta's new coalition government and extremely bleak economic conditions, the resilience of Italy's sovereign bond market remains undiminished. However, demand at Spanish and Italian auctions has been somewhat lacklustre of late. Today's Italian sale was reflective of this trend but still a solid auction, with yields coming in further and the Treasury hitting the top end of its target.

2. There's a growing acknowledgement on the part of many market participants that Spanish and Italian bond prices have become far too detached from fundamentals. Yet just because the rally appears way overdone doesn't mean that it's about to go into reverse. The "reach for yield" continues unabated and Spanish and Italian debt markets are among the biggest beneficiaries of this dramatic shift in investment behaviour. Yet there's an inescapable sense that peripheral government bond markets are due for a correction – the timing and the abruptness of it being a matter of debate.

Updated at 11.31am BST

10.31am BST

Italian bond auction result

A successful bond auction for Italy. It just raised €8bn, its maximum target, at lower yields than earlier this year.

Not much sign that investors are losing their appetite for peripheral bonds (although demand was down slightly).

Here's the details:

• €3.5bn of 2016 bonds, at a yield of 1.92%, down from 2.29% in April (lowest yield since January 2013)

• €3bn of 2018 bonds, at a yield of 2.44%, down from 3.030%

• €1.5bn of 2026 bonds, at a yields of 4.07%, down from 4.55% in February

Financial analysts say it's a decent result, despite a drop in the bid-to-cover ratios (the measure of how over-subscribed the sale was)

Updated at 11.00am BST

10.13am BST

ECB negative rates ‘would be effective’

The euro has fallen this morning after Italy's central bank governor said the European Central Bank could cut its deposit rate (paid to banks who stash cash with it) into negative territory.

Ignazio Visco, a member of the ECB's governing council, told CNBC that a negative deposit rate would be effective.

The comments come 10 days after Mario Draghi revealed that the ECB was open to the idea of cutting the deposit rate below its current low of 0.0%.

Visco said:

We all agreed in the council that we have to look with care and in that case we may reduce the [deposit] rate….

We think that – and I personally think that, this is effective – the economy now is capable of taking it on board. Technically, we are equipped and ready to intervene. There may be unintended consequences – we know we may have to work on that – and we know how to work on that.

Just to be clear, we're not talking about hitting depositors with negative savings rates (the ECB cut that rate to a record low of 0.5% this month).

Imposing negative interest rates on bank deposits would be a significant development in the history of the eurozone. Visco's 'unintended consequences' include the possibility that banks buy riskier government bonds, rather than leaving money in the central bank to suffer a small loss each night.

Banks could also actually cut liquidity, rather than pushing more credit out into the eurozone economy.

But it's a complicated picture. A City pro who blogs and tweets as @barnejek did a fine post on this last Friday: What the central bank giveth, only the central bank taketh away.

I don’t question the fact that such a move will persuade banks to search for higher-yielding assets, ie loans but what I’m trying to explain is that the liquidity in the banking system is like a hot potato. The central bank controls how much money there is in the system (using various ways, eg printing money, changing the reserve requirement etc) and the market only needs to decide the price of this money.

The only way that lowering rates to the negative territory impacts the amount of cash in the system is because the central bank will be returning 99% of the money placed in it back to banks.

But then which of the major central banks could even contemplate shrinking its balance sheet at the time when the global economy remains exceptionally fragile?

And Frances Coppola's piece on the strange world of negative interest rates remains a must read, too.

Updated at 10.18am BST

9.40am BST

The Wall Street Journal's Matina Stevis predicts few fireworks in Brussels today, as euro finance ministers take stock of the situation:

9.37am BST

Heads up: Italy is auctioning up to €8bn of government debt this morning. RANsquawk has the details:

Updated at 9.37am BST

9.21am BST

Schäuble: Slovenia must accept tough austerity

Germany's finance minister declared this morning that Slovenia must swallow 'painful' measures if it is avoid seeking international help.

Wolfgang Schäuble told Germany's SWR radio station that:

Slovenia can manage [without a bailout programme]. However it must also carry out some painful restructuring [of its economy].

Quotes via Reuters.

Last week the Slovenian government announced a package of state asset sales, a restructuring of its ailing banking sector, and a 2% increase in VAT. The European Commission is expected to give its verdict on the plan by the end of May.

9.08am BST

Our economics editor, Larry Elliott, writes today that Spain's leaders are pinning their hopes on banking union, and eventually fiscal union too. But the risk of a "crash landing" remains dangerously real, he warns:

That's not just because unemployment in Spain has risen by three and a half million since the start of the crisis and has now reached 27%, or that the domestic economy has shrunk by a sixth. It is that Spain is up to its eyeballs in debt, with no likely improvement in prospect.

Despite austerity, little progress is being made in reducing the budget deficit and national debt is heading for well over 100% of gross domestic product. In the absence of more rapid growth and a banking union being agreed swiftly, a Greek-style debt restructuring seems eminently possible.

Spain is perhaps the emblematic eurozone country. Its past performance reflects the design flaws in the single currency; it is trapped in a low-growth, high-debt vortex; and it can only recover if a reluctant Germany backs plans for integration.

More here: Pedro Almodóvar's Spanish disaster script is all too realistic

8.52am BST

Cyprus: Europe must learn lessons

Cyprus is hoping to patch up relations with the eurozone during today's Eurogroup meeting, its finance minister has said.

Haris Georgiades (appointed in April) told CNBC that he was eager to repair any damage with relations with Brussels, following March's botched bailout that resulted in capital controls being imposed in Cyprus and heavy losses on larger bank customers.

Georgiades also warned that Europe must learn lessons from the Cyprus debacle and rethink its decision-making process.

8.33am BST

Video: Los Indignados hold ‘silent scream’

Spains' Los Indignados movement held a 'silent scream' in Madrid's Puerta del Sol square yesterday evening, as part of Sunday's protests.

This video clip shows that the famous square was packed, suggesting thousands of people took part:

Sunday's protests marked two years of Los Indignados (the official anniversary is this Wednesday).

Euronews has more details. Here's a flavour:

“I’m here because, two years later, things are worse. We demanded social rights, and we’re actually losing them,” said one demonstrator.

Another added: “I think everybody who is really concerned about people and not about other interests, should be here. We’re fighting to make everything fairer and to look after ourselves.

There were marches in around 30 cities in Spain, according to local reports. Many people were protesting against banks repossessing homes from people who can no longer afford their repayments (more than 350,000 families have been evicted since the crisis started).

Some photos:


Activists of the Mortgage Victims’ Platform (PAH) hold placards which read “Stop evictions” during a demonstration in Valencia on Sunday. Photograph: HEINO KALIS/REUTERS
Demonstrators gather in the Puerta del Sol on the second anniversary of the 15M movement in central Madrid May 12, 2013.
Demonstrators gather in the Puerta del Sol on the second anniversary of the 15M movement in central Madrid May 12, 2013. Photograph: PAUL HANNA/REUTERS
Demonstrators march on the second anniversary of the 15M movement in Malaga, southern Spain May 12, 2013
Demonstrators marching in Malaga on Sunday. Photograph: JON NAZCA/REUTERS

8.18am BST

The agenda

While the Eurogroup meeting takes place Spain's prime minister, Mariano Rajoy, will hosting his Portuguese counterpart, Pedro Passos Coelho, in Madrid.

As well as geography, the two leaders are united in facing public opposition to their austerity programmes.

• Rajoy and Passos Coelho at the Iberian summit

• Finance ministers arrive in Brussels for the Eurogroup: 2pm BST

• Eurogroup meeting begins 4pm BST

• Eurogroup press conference: 11pm BST (!)

7.59am BST

Ministers to decide on Greek and Cyprus aid payments

Good morning, and welcome to our rolling coverage of the eurozone financial crisis, and other key events across the world economy.

Greece and Cyprus will be under the microscope today when Eurozone finance ministers meet to decide whether to extend bailout payments to both countries.

Ministers are expected to give their approval to Cyprus's first aid tranche, worth €3bn, and also to sign off the latest instalment of Greece's own package. If that happens, expect to hear soothing words about Europe making progress…

…But the Eurogroup meeting will be overshadowed by two other unfolding stories — Slovenia's efforts to avoid its own bailout, and the escalating social unrest in Spain.

With Spanish unemployment at a blood-chilling 27%, there were fresh protests against the country's government over the weekend.

Spain's Los Indignados protest movement held marches in scores of cities across Spain on Sunday, under the slogan ""From outrage to rebellion" (more on this shortly)

Something for finance ministers to ponder as they head to the Eurogroup….

I'll be tracking the latest events through the day….

Updated at 8.39am BST

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