Welcome to our continuing coverage of the eurozone crisis. All times are GMT. By Tom Burgis, James Crabtree and John Aglionby on the news desk in London, with contributions from FT correspondents around the world.
The turmoil in the eurozone has taken a troubling turn in recent days, with anxiety spreading from Europe’s periphery to its “core” countries. Even as Italy’s Mario Monti readies his economic agenda to be presented today, investors are looking at France, the Netherlands and Austria with increasing unease and wondering whether the ECB might yet ride to the rescue. Over in Greece, today is the anniversary of 1973′s mass student protests – with demonstrators once more planning to take to the streets. And the bond markets are showing ever more strain, with today’s Spanish bond auction souring sentiment still further.
17.58 That’s that for our live coverage of the eurozone crisis today. Thanks for reading and for your comments. See FT.com through the evening for updates, including news of the Italian vote on Monti’s reform plans. We’ll leave you with a round-up of the day’s developments:
- Mario Monti, Italy’s new prime minister, avoided any mention of a wealth tax in his speech to parliament outlining his economic reform plans but said “sacrifices” had to be equitable as Italy ensured it reached a balanced budget by 2013
- Italian bond yields climbed past 7 per cent again – and Spain’s approached that danger point too
- More ECB bond-buying failed to calm investor jitters as European equities fell and US stocks followed them down in early trading
- The forint rocketed after Hungary said it wanted to resume co-operation with the IMF – only for the IMF to clarify that its mission in Budapest was not there for any such negotiations
- Tens of thousands took to the streets of Athens to mark the anniversary of the 1973 student uprising against the junta, haranguing the new government in the process
- A protest in Milan against the new “bankers’ government” turned nasty
- Charles Dallara, head of the Institute of International Finance, said in Frankfurt that his organisation had secured the support of 70-80 per cent of Greek bondholders for further “haircut” talks with Athens
- And just to add grist to the conspiracy theory that Germany is now pulling all of Europe’s strings, the Irish government came under pressure to confirm or deny whether it had shared its budget calculations with Berlin
17.50 It’s not looking good in early US trading, reports FT markets editor Chris Adams:
17.33 Back to Franfurt and the FT’s James Wilson, who has more from the briefing with the Charles Dallara of the IIF, which represents Greek bondholders (see 16.27).
Dallara has said a creditor committee that will be involved in a debt deal includes “the overwhelming bulk of large holders of Greek debt”, including, as he puts it, banks, insurance companies, asset management firms “and even a few hedge funds”. He says it represents 70 per cent to 80 per cent of privately held Greek debt.
That doesn’t mean the IIF is rowing away from an ambition to get 90 per cent take-up, says Dallara: “It is not a signal that we cannot achieve 90 per cent or higher. It means we can speak with direct confidence on behalf of 70 to 80 per cent.”
A steering committee – presumably a smaller group of key bondholders and IIF officials – will be formed in the next few days to push talks forward.
Greece also seems to want a deal by early next year but there is no indication of how far apart bondholders might be from the government in terms of the nitty gritty of a deal.
All sides agree there should be an upfront cut of 50 per cent in the nominal stock of Greek debt. But the deal that emerges could still have many different outcomes for Greece or bondholders depending upon the other parameters, such as the coupon on new bonds and the losses for bondholders expressed in net present value terms.
Dallara said only that the task is to “define the [net present value] losses for our investors in a way that is fully consistent with a voluntary agreement” – ie, on as generous a basis as possible for the bondholders involved.
It also looks like bondholders may only get offered one or two alternatives this time, compared with the menu of four different options that they could have signed up to when an outline agreement on PSI, or private sector involvement, was brokered in July.
Finally the IIF is – unsurprisingly – holding firm on the idea that the deal for Greece is “unique”. “We do not envisage a similar exercise with Italian sovereign debt,” Dallara said.
It doesn’t look as if a deal can get done before early next year because first there needs to be the necessary approval of the October rescue deal for Greece so that there can be recapitalisation of Greece’s banks.
17.28 From New York, Gillian Tett, the FT’s US managing editor and author of a book about the financial crisis, has sent a column on the changing role of credit default swaps – the instrument that are used, in theory at least, to insure against defaults.
These days, it is becoming less clear whether those sovereign CDS contracts really offer effective “insurance” against default. And that in turn raises a more unnerving question: if the exposures of the large European banks were measured in gross, not net, terms, just how much more vulnerable might they be to sovereign shocks? Or, to put it another way, could the problems now hanging over eurozone banks and bond markets be about to get worse, due to the state of the sovereign CDS sector?
17.16 Back to Budapest, where the Hungarian government announced it wants to recommence co-operation with the International Monetary Fund (see 16.19). Iryna Ivaschenko, the IMF’s resident representative in Hungary, has just put out a statement.
“The IMF team currently in Budapest is conducting a regular Article IV review and the second review under post-program monitoring of the Hungarian economy. The mission for the Article IV consultation is not a negotiating mission, but a mission to conduct the regular economic surveillance that the IMF performs for all member countries. The IMF has not received a request from the authorities to initiate negotiations on a Fund-supported program.”
Over on beyondbrics, the FT’s emerging markets blog, Stefan Wagstyl, the FT’s emerging markets editor, has posted on Viktor Obran’s government’s about face under the compelling headline: markets 1 Orban 0.
17.06 Over on FT Alphaville, John McDermott has been weighing market chatter that the ECB might lend to the IMF, which in turn could help out Italy.
Lending to the IMF would allow the ECB to overcome the legal restrictions placed on its bond buying programme — or as some would have it, the German interpretation of those restrictions. The treaty allows open market operations but not “monetary financing” through the direct purchasing of government debt.
16.58 Maybe Europe is speaking German after all. From Dublin, the FT’s Jamie Smyth,reports that the Irish government has come under strong pressure this evening to confirm or deny reports that details of next month’s Budget, including a planned 2 per cent hike in VAT, were communicated yesterday to a budget committee in the German parliament.
Taoiseach Enda Kenny met chancellor Angela Merkel in Berlin yesterday after which reports emerged that the Irish government was planning raise the top rate of VAT to 23 per cent. According to documents presented to a Bundestag budget committee, the measure would generate an additional €670m for the Irish government. The government is reportedly planning to make up the rest of the €1bn it is targeting in new revenue measures through indirect taxes. Reuters ran with the story today under the headline: “Germany inspects Irish budget.”
16.53 Back to Athens, where Kerin Hope has been talking to demonstrators on the annual march marking the anniversary of the 1973 student uprising against the junta of the day.
I spoke to a 19-year-old chemistry student called Tomas, who said: “I usually come on this march and this time it is really more significant because Greece is in such a mess. Will I be able to get a job when I finish my studies?”
I also met an old man outside a cake shop, calling himself Panayotis. He said he was a civil servant and that he had been at the original student rebellion in ’73 and it had been great. After that Greece became a democracy but now the good times seemed to be ‘over’ and he feels things are definitely getting worse.
16.27 And in Frankfurt, Charles Dallara of the Institute of International Finance, the body that’s been negotiating with European leaders on behalf of the holders of Greek debt, is briefing reporters. The FT’s James Wilson is listening and reports:
The main initial point is that bondholders have agreed to form a creditor committee to advance talks with Greek and EU officials. It will be broad-based, says the IIF, and represent 70 to 80 per cent of private bondholders. It will aim to strike deal early 2012. Still sticking to aim of October, ie a 50 per cent haircut.
16.24 Over in Brussels, the FT’s Peter Spiegel has a statement from the Hungarians (see 16.19):
In a statement filled with nationalistic tones, Hungary’s ministry for national economy said the IMF talks are not for a traditional bail-out or line of credit which would “increase government debt”, and instead would be “an insurance contract in order to increase the safety of investors in Hungary.”
“A new type of cooperation with the IMF, adapted to our economy, which has been transformed on the basis of our national interest, could be a potent instrument which would increase our financial and economic independence instead of hindering it like the old one,” the statement reads.
16.19 Over in Hungary, the government has announced it will seek support from the International Monetary Fund. Neil Buckley, the FT’s eastern Europe editor, reports:
This is economic equivalent of a handbrake turn, coming as it does just 18 months after Hungary broke off co-operation with the IMF. The beleaguered forint has jumped more than 2 per cent after the economy ministry said it would talk to the IMF about an “insurance” agreement that would “not increase state debt”.
Analysts have read that as a signal that Hungary will seek a precautionary credit line, rather than a full standby arrangement. Simon Quijano-Evans of ING says any programme would need to be at least €4bn, the size of Hungary’s external financing requirements in 2012.
But the market has reacted positively, seeing Hungary’s willingness to co-operate with the IMF as potentially avoiding an expected sovereign downgrade to junk status, after Fitch and Standard & Poor’s shifted their outlook to negative last Friday.
16.14 FT markets editor Chris Adams’ tireless efforts on Twitter today have earned him the attention of one of Europe’s most hallowed institutions:
16.01 With the confidence vote on Mario Monti’s economic reform plans only a few hours away, Ferdinando Giugliano, the FT’s Peter Martin Fellow in the leader-writing team, assesses the proposals.
Mario Monti seems to have been reading the Financial Times. The plan he outlined in parliament today largely mirrors what this paper – and many other Italian and European commentators – had urged him to do. This is welcome. However, doubts remain over how strong his political backing really is.
Among the measures he outlined were a comprehensive spending review, reform of the pension system and a clampdown on tax evasion. He has also promised to overcome the dual nature of the Italian labour market – where some jobs are heavily protected while others often scant security for employees – and to make the service sector more competitive.
What was missing from Monti’s programme was a wealth tax, which would be a neat way to cut the Italian public debt [more on that over on FT Alphaville]. It would, however, risk depressing spending and consumption. Monti probably decided to stay away from this controversial measure as the ex-premier Silvio Berlusconi’s People of Liberty party is vociferously against it.
Minutes before Monti’s speech, Berlusconi reportedly once again threatened to bring down the new government if the reforms made by the technocratic administration did not find favour with his party. This threat is not completely convincing. His party is fragmented and its Christian Democratic wing is supportive of the Monti administration. Yesterday’s decision by the Catholic Church to back the new government may prove particularly important for the government’s survival.
How long it lasts will ultimately depend on Monti himself. By including in his government ministers with close links to the Vatican and by steering away from the controversial wealth tax, the new prime minister is showing signs of political astuteness. He will need plenty of he to implement his comprehensive programme.
15.36 Back to Athens, where the FT’s Kerin Hope has joined the throng on the streets to mark the anniversary of the 1973 student protests that helped to bring down the then-ruling junta. All is calm so far, Kerin reports, and some demonstrators have turned to history to attack the new government.
Students carry a blood-stained Greek flag during a rally in Athens marking the anniversary of a 1973 student uprising against the dictatorship then ruling Greece (Reuters)
I’m near the British embassy on the route of the march – it’s tens of thousands of people and must be 5km long – and there’s one banner that reads: “The junta isn’t over.” The message is about a surrender of sovereignty. Back in 1973 the target was the Americans who supported the military government; this time round it’s the EU, who are forcing austerity measures on Greece in return for a bail-out to help with its mountainous debts.
The parrallels with the junta only go so far, of course. For one thing, unlike in Italy, where Mario Monti is putting together a government of technocrats no one has voted for, the only unelected member of Greece’s new government is Lucas Papademos, its leader. Still, Kerin says:
The chants are: “Together, together, let them leave together,” aimed at the entire government. There are a lot of people wearing masks and scarves in case of tear gas. There are plenty of police in riot gear but they’re largely staying on the side streets. They look as though they’re ready to pounce if needs be, though. The German and British embassies are heavily guarded. It’s not the unions – more seriously leftwing. But the demo is a lot smaller than some of the ones we’ve seen outside parliament in recent months.
14.55: The arrest on tax evasion charges of George Petzetakis, chief executive of a struggling family-owned plastics manufacturer, has sent shockwaves through Greece’s close-knit business elite, writes the FT’s Kerin Hope in Athens.
Mr Petzetakis, who is adamant about his innocence, spent a night in a cell at Athens’ central police station before being sprung by his lawyers on bail, owes about €2m in unpaid taxes, according to the financial police.
Until now, making alleged offenders do the perp walk hasn’t exactly been a feature of Greece’s crackdown on tax evasion, even though it’s been recommended for months by International Monetary Fund officials advising the government.
So is the finance ministry finally getting tough with prominent tax evaders? It’s too early to say, Kerin believes, after talking to analysts.
Next Monday will be a critical date. The finance ministry has promised to publish the names of some 14,000 alleged tax evaders if they haven’t paid up by then. Greek media are speculating that a wave of arrests is looming.
There could be a hitch, though.
Take the case of Panayotis Panousis, chief executive of Atti-Kat, a once-flourishing construction company now close to bankruptcy. He was picked up last week on charges of owing more than €7m to the tax authorities.
After a two nights in a cell and some high-pressure arguing, Mr Panousis was allowed out to start the process of clearing his name.
Mr Panousis doesn’t deny that he owed money to the tax authorities. But he denies wrongdoing and made a counter-claim for €80m owed to Atti-Kat by the Greek state on contracts for public works that have already been completed.
With the state owing close to €7bn to suppliers, many other businesspeople on the finance ministry list are in the same position as Mr Panousis.
Oddly, both the Greek tax authorities and the financial police seem unaware of a law passed by the previous finance minister George Papaconstantinou, exempting people in Mr Panousis’s situation from prosecution and making provision for a tax settlement.
Meanwhile, the Athens chamber of commerce and industry is offering some useful advice: if the balance is in your favour, go to round to your local tax office and get certification in writing.
Constantine Michalos, the chamber president, tells the FT: “We’ve told our members to keep that certificate with them twenty-four seven until this issue is sorted out.”
14.45: The European Council on Foreign Relations has issued a briefing paper titled – somewhat optimistically perhaps – Spain after the elections: the Germany of the South. It concludes:
Through Rajoy’s plan to turn Spain into the “Germany of the South”, Spain can help to heal the divisions between northern and southern Europe. This will in turn give Spain credibility to make sure that, as Germany and others take necessary steps towards political union, they do so in a way that is open and fair and benefits the whole of Europe.
Second, by taking the lead on European foreign policy in the Mediterranean and by associating itself with the Weimar Triangle’s defence agenda, Spain can make a contribution to European foreign policy. Such a proactive strategy would be good for both the EU and Spain.
14.35: An option that has been much discussed in the FT is of the ECB lending to the IMF, who then uses that money to fight the eurozone inferno. Well, it seems officials are now kicking it around now too.
14.25: Update from Dublin, where the Irish government has just announced its latest cost-saving measures designed to help it meet the terms of its €67.5bn EU-IMF bail-out.
Jamie Smyth, the FT’s Dublin correspondent says Enda Kenny’s government plans to:
- cut the number of public servants by a further 15,000 to 282,500 by 2015. This will save €2.5 bn per year on public sector pay from 2015 compared to 2008 when the the number of public servants peaked at 320,000.
- merge or abolish 48 state bodies or quangos by the end of 2012. (There are an estimated 250.)
- a further 46 agencies will be placed under review with a decision on their future due in June 2012
- scrap the previous government’s plan to decentralise a lot of government departments and state agencies out of the Dublin area
- reform public procurement and explore property rationalisation
- maximum leave entitlements for existing public servants to be set at 32 days while new staff will get 30 days
Some of the quangos to be merged or axed include:
- the competition authority, which is to be merged with the national consumer agency
- the dormant accounts board is being axed (it disburses money from dorman bank accounts)
- the number of local education committees administering adult and some secondary education will be cut to 16, from 33 currently.
13.40 Over to Rome, where the FT’s Guy Dinmore has been digesting Mario Monti’s speech.
Mario Monti lays out his economic reform plans to Italy's parliament (AFP/Getty)
Monti, giving his first parliamentary speech since taking over as prime minister, says the three pillars of his programme will be financial rigour, growth and social equity. His tone before the senate was extremely sombre, declaring that Italy faced an emergency and that Europe was going through its worst crisis since the second world war.
While he avoided the word “austerity”, the technocrat prime minister said “sacrifices” had to be equitable as Italy ensured it reached a balanced budget by 2013.
Additional corrective budgetary measures might be necessary because of the market crisis, Monti said, but gave no details. However, he said his government would consider reimposing a property tax on principal homes lifted by the previous government of Silvio Berlusconi. But he did not mention a wealth tax. Reforms to the pension system and work contracts are needed while the system of collective wage bargaining at the national level should be made more local, he said.
Tax incentives were needed to get more young people and women in the market place, while the tax burden on enterprises must be reduced. The crackdown on tax evasion must go on, he said.
The cost of politics — a subject dear to the heart of Italians — must be reduced, Monti said. His speech was interrupted by applause several times and appears to have gone down well.
“This government recognises that it was born in order to tackle the situation of a serious emergency,” Monti said, calling his administration a “government of national unity” and appealing to all the political parties to put aside their differences and work collectively for the national interest.
The senate is to hold its vote of confidence in his government programme this evening.
13.25 From his perch overseeing the front page of the FT’s companies and markets section, Tony Tassell has spotted a chart that brings it all home:
13.07 Over in the markets, some respite for Italian debt. Chris Adams, FT markets editor, tweets:
13.03 More from the Milan protests. Reuters reports:
The students also threw eggs and fake dollar banknotes at the building of the Italian banking association. “We don’t want the banks to rule” and “Monti’s government is not the solution”, the students chanted.
12.53 Meanwhile, James Crabtree, an FT Renaissance man presently squatting on the world news desk, has calculated our Stat Of The Day: 41 per cent.
That is the proportion of eurozone governments that have fallen early since the crisis began. Seven out of 17 have now fallen (or at least will have done by Sunday, barring a spectacular upset in Spain). Only two more before those surviving are in the minority…..
12.39 Monti is speaking in Rome.
Italy faces “a serious emergency”
“Italy’s debt is 120 percent of gross domestic product, about the same as it was 20 years ago. We must convince investors that we can reduce it.”
He says the future of euro depends on what Italy does in next weeks.
12.33 It’s all kicking off in Milan:
Students clash with police during a demonstration in Milan on Thursday (AP)
Reuters reports:
Hundreds of students prostested in Italy’s financial capital Milan against what they called the “bankers’ government” led by economist Mario Monti and scuffles broke out with police, witnesses said.
The students threw firecrackers at police trying to prevent them from approaching the Bocconi university, which is chaired by Monti and has become a symbol for his new executive of technocrats, formed to tackle Italy’s debt crisis.
Police responded by charging the students with batons. One journalist was injured by a firecracker, police sources said.
12.27 The FT’s visual maestros have produced this graphic for today’s paper, which illuminates the shape of the eurozone rather nicely.
12.18 The European Commission’s task force on Greece, the body charged with trying to co-ordinate technical assistance to the repeatedly bailed-out Greek economy, has put out its first quarterly report – and finds that unpaid taxes amount to the equivalent of about one quarter of GDP.
€60bn of unpaid taxes (of which €30bn in pending tax cases) are currently outstanding in Greece. Even though the actual prospects for collection are very low, the very size of these tax arrears casts a doubt over the efficacy of the overall tax administration. An action plan has been drawn up to tackle this issue, involving a joint effort by the Greek authorities, EU member states and the IMF.
12.00 The Italian senate is due to be starting its session on economic reforms about now. Mario Monti will outline his plans in a speech, then there will be a vote. Meanwhile, a quick summary of the morning’s developments in the markets:
- Spain paid an average yield of 6.975 per cent to issue €3.6bn of debt – close to the 7 per cent danger line
- Italy, once again, crossed that line, its yields edging up again towards 7.1 per cent
- France‘s €6.98bn of various maturity bonds fared better at auction, with July 2016 notes were priced to yield 2.82 per centamid strong demand
- European stocks declined in early trading
11.55 More from the ever-cordial Anglo-German entente:
11.40: Simon Tilford, chief economist at the Centre for European Reform, belives that Germany is becoming increasing isolated.
The French government, shaken by the rise in its borrowing costs, is becoming more openly critical of Germany’s refusal to support more concerted ECB action to stabilise the markets. Italy now has a prime minister with real credibility (and a background in economics); it will be harder to simply brush aside Italian concerns. And crucially, Dutch, Austrian and Finnish borrowing costs are rising now quite quickly relative to German ones.
So far, these countries have firmly supported the German line, but that could change as they get drawn into to crisis. A Germany in a minority of one and subject to increasingly vocal criticism may yet bend, opening the way for the needed ECB shock and awe.
11.35: Mario Monti is to make his first trip to EU lions den next week, according to a statement by European Council president Herman Van Rompuy. It says the two men talked by phone and would continue their discussions in Brussels. It added:
I expressed the EU’s full confidence on the Italian capacity to overcoming its current situation and to fully contribute to solving the euro area financial crisis.
Don’t you love it that leaders feel the need to say such stuff. Will anyone ever issue a statement saying the opposite?
11.17 Back to Madrid and the FT’s Victor Mallet, who has been listening to Mariano Rajoy, leader of Spain’s centre-right Popular party and the man likely to be elected prime minister in Sunday’s general election, pour some cold water on Europe’s ascendant technocrats.
The politician's politian: Spain's Mariano Rajoy (Getty)
Good politicians, not technocrats, are the ones “who have done great things in the course of history”, Rajoy told a campaign rally near Barcelona on Wednesday night.
His comments were a not-so-subtle criticism of the installation of technocratic governments in both Italy and Greece last week to try to manage the eurozone’s sovereign debt crisis.
In these turbulent times, Rajoy himself is expected to choose a technocratic economy minister – the latest favourite is José Manuel González Páramo, a member of the executive committee of the European Central Bank – but it was perhaps inevitable that as a career politician he should stand up for old-fashioned politicos.
Rajoy called for a little more thought about the merits of unelected technocrats as national leaders. “I believe in democracy and in good politicians,” he said.
It will be interesting to see if the European Commission and the International Monetary Fund, which encouraged the rise to power of Mario Monti and Lucas Papademos in Italy and Greece respectively, share his views.
11.11 WikiGreeks, a news and comment site on the Greek crisis, has this story today on the government’s reported efforts to clamp down on tax evasion.
Greece is entering a new phase in the relationship between the government and its citizens. Prosecutors are actually now arresting persons alleged to be major tax evaders.
10.57 Bazookas at the ready, writes Megan Green, senior research analyst for western Europe and the eurozone at Roubini Global Economics. In a post published this morning she calculates how EU leaders might cobble together a €700bn+ “Big Bazooka 2″ with which to take aim at the sovereign debt crisis.
Through a combination of IMF funds, New Arrangements to Borrow (NABs), special drawing rights (SDRs), the EFSF and the ECB’s Securities Markets Programme (SMP), EU leaders could create a bailout fund worth around €723bn.
Greene goes on:
The biggest likely spanner in the spokes is political. The plan to use the IMF and SDRs to create a bazooka for the eurozone was already on the table at the Cannes G20 meeting in early November. The Bundesbank rejected it resolutely because it did not want to accept any kind of credit risk to its balance sheet.
10.54 Word from the markets suggests that credit default swaps – a form of insurance against a default – are signalling some serious worries.
10.51 BREAKING MARKETS NEWS Further to the ruckus in sovereign debt markets this morning, the FT’s capital markets correspondent Robin Wigglesworth has the results of the French sale just finished:
France issued €6.98bn of various maturity bonds at auction, but the sale was also met with a muted reception. The July 2016 notes were priced to yield 2.82 per cent, compared to 2.31 per cent on October 20. The yield on France’s 10-year benchmark bond rose 7 bp to 3.75 per cent.
10.45 Over at Prospect Magazine, Peter Mandelson, the former UK minister and European commissioner, has taken at swing at the growing chorus of voices from the British right demanding a showdown with Brussels.
Except in the fantasy world of the Eurosceptics, it is hard to imagine a self-excluded Britain dictating single market terms to eurozone members, especially when they have seen a eurozone bailout effectively help keep British banks and the British economy afloat.
10.36 Back to Madrid, where the FT’s Miles Johnson has been chatting to traders about this morning’s bond auction.
The mood on bond desks appears to be at a new low after the Spanish and French auctions this morning. One trading desk puts it as such:
“Simply put, the ECB’s transmission mechanism is broken and all correlations are breaking down … Contagion has spread to all the AAA countries, even Finland, a very strong AAA country with fiscal dynamics that all countries outside the eurozone would envy. If we don’t see some relief after the average French auction just out, then the combination of a very poor Belgian, poor Italian and now very weak Spanish auction will lead to another large deleveraging before the weekend.”
10.30: European equities are taking a battering off the back of the morning’s gloomy mood from the bond markets. Robin Wigglesworth, FT capital markets correspondent in London, reports:
Spooked by the action on eurozone sovereign bond markets, which have been plunged in turmoil for several months now despite the ECB’s periodic dives into the secondary market to steady nerves and subdue yields, fund managers sold shares and other risky assets.
The FTSE Eurofirst dropped 0.5 per cent, led by the French, German and Italian markets. France’s CAC index, Germany’s Dax and Italy’s FTSE MIB gauge all shed about 1 per cent. The Spanish Ibex gauge dropped 0.7 per cent, and the FTSE 100 fell 0.9 per cent.
That’s because:
Italy’s 10-year borrowing costs climbed 11bp to almost 7.1 per cent, above the painful threshold it has been fluctuating around for most of the week, despite European Central Bank’s intervention. The spread of French 10-year yields hit a new record of 205 bp above comparable German government bonds, highlighting how the crisis is spreading from the embattled periphery to the eurozone’s ‘soft’ core.
Read the full morning market overview
10.23 So it’s another chilled out morning in the bond markets, then. Chris Adams, the FT’s markets editor, is tweeting like there’s no tomorrow (not to tempt fate…):
10.15 In Madrid, the FT’s Victor Mallet reports on that worrisome auction bond:
Spain on Thursday paid an average yield of 6.975 per cent to issue €3.6bn of 10-year bonds, nearing the 7 per cent level widely regarded as unsustainable and underlining the extreme strain in eurozone sovereign bond markets.
Last month, Spain issued 10-year bonds at 5.433 per cent. In Thursday’s auction, the bid-to-cover ratio was an unimpressive 1.5 times, and the yield was the highest Spain has paid since 1997.
Before the auction, turmoil in the eurozone’s sovereign debt markets and fears of defaults had driven Spain’s 10-year bond yields in the secondary market to a euro-era high of 6.59 per cent. That surpassed the level that prompted the European Central Bank to start buying Spanish bonds, along with those of Italy, in August.
10.05 Hold on to your hats…
09.57 It’s not looking good for that Spanish bond auction, tweets Chris Adams, FT markets editor.
09.53 Good morning. Should you have missed them, here’s some essential morning reading from the FT:
Richard Milne, capital markets editor, on the parallels between Lehman and the sovereign debt crisis.
Tuesday’s indiscriminate selling of eurozone bonds, apart from those of Germany, shows that more than ever markets are questioning the very survival of the euro.
In Frankfurt, Ralph Atkins has a deft analysis of the bind in which the ECB finds itself.
Central bankers never exactly swagger, but financial crises are times when they can at least show off their unlimited financial firepower. So why, even as the eurozone debt crisis has escalated, has the European Central Bank remained so modest?
And Denis MacShane, a British MP and former Europe minister, writes on why Europe is not, in fact, speaking German.
Friends in Greece say there is a raw hate of Germany as party leaders are instructed to sign a personal letter like colonial subjects bowing before their new masters. The euro crisis is shifting from economics and politics, and becoming deeply emotional.
For views and opinions on the European Union from Peter Spiegel, Joshua Chaffin, Alex Barker and Stanley Pignal, follow the 