Debt crisis: as it happened - August 17, 2012

16.07 Spanish public sector workers who are angry with government cutbacks have again taken to the streets in protest today. AFP reports that the protesters - many waving red flags representing Spain's two largest unions, the UGT and the CCOO, which organised the rally - gathered outside the finance ministry as they have every Friday this month.

15.03 Madrid's mayor has spoken out about Spain's economic predicament, saying that it "seems inevitable" the central government would apply for some kind of international aid package as the country goes through a deep recession and borrowing costs soar.

Reuters reports:

Ana Botella, wife of former Prime Minister Jose Maria Aznar, is the first high-level Spanish official to say publicly that the country would need a financial rescue.

"There's no doubt about it. It's very probable that we're going to have to ask for help from the European Union," Botella told Spanish news agency Europa Press in an interview.

"It seems inevitable," the agency quoted her as saying.

14.54 Angela Merkel is mulling easing Greece's bailout terms, according to Bloomberg. The newswire has interviewed a couple of German politicians, who say that the chancellor is considering easing the terms. Such a move could fan tensions with members of her coalition, who oppose giving the Greek government any more concessions.

Bloomberg writes:

Merkel?s government is torn between showing some leniency toward Greece as it struggles to meet the terms of its rescues and insisting that Prime Minister Antonis Samaras deliver on his promises, Klaus-Peter Willsch and Frank Schaeffler, both of whom have voted against Merkel?s euro crisis policies in parliament, said in separate telephone interviews.

?The sensitivities among many more than just the 27 coalition members who voted ?no? last time are well known? to Merkel, ?so the official line is to stay tough? on Greece, said Willsch, a member of Merkel?s Christian Democratic Union party. ?But at the same time, some are being sent forward to test the waters on how this tough line can be abandoned.?

Samaras, whose coalition favors extending its fiscal adjustment program by two years to the end of 2016, will visit Berlin on Aug. 24 for talks with Merkel, almost three years after the debt crisis emerged in Greece.

14.41 London's markets are fairly quiet, with the FTSE 100 up just 0.07pc to 5838. Germany's DAX is up 0.35pc to 7020 while Spain's IBEX is up 1.92pc to 7560.

The euro has come off its earlier highs against the dollar:

13.47 AP has a report on the latest victim of the debt crisis - Morocco. A slump in business with its main export partner and the costs of keeping the peace amid uprisings in the Middle East have forced the country to impose austerity measures in order to receive international financial assistance:

Long a model of relative prosperity in northern Africa, Morocco had to seek help from the International Monetary Fund this month, winning a $6.2 billion precautionary credit line. The IMF says it offered the loan to help Morocco cope with fluctuating energy prices and the effects of Europe's economic troubles.

In exchange, the government promised to reform the pension system and a costly program of state subsidies for energy and staples, according to a letter published on the IMF website this week.

Morocco's state spending is at record highs, the deficit is soaring and its No. 1 trading partner - Europe - is flailing. The latest economic figures show that Europe is edging closer to recession, dragged down by the crippling debt problems of the 17 countries that use the euro. Europe's stumbling economy is making it harder for other economies around the world to recover and policymakers are trying to reach agreement on more decisive action to deal with the debt crisis.

13.05 Another European minister has spoken out in favour of keeping the eurozone together. Dutch finance minister, Jan Kees de Jager, said the focus of the Netherlands and the euro zone was to keep the single currency area together. He said:

We never speculate about an exit from, or the break-up of the euro zone. The euro zone is very important for the Netherlands. We've benefited a lot from Europe and the single market.

12.51 AFP is reporting that Spain's government will shortly request a first payment for its banks from a eurozone rescue line. A spokesman for the economy ministry told AFP that "the request will be sent shortly", but declined to specify the exact amount or timing for the request, which is to be made by the Bank of Spain.

12.34 At 10.58, we mentioned that comment by Neil Unmack of Reuters on how all this talk of a eurozone break-up does not help Mario Draghi's cause. Here's a bit more comment from Neil Unmack's longer article on that theme, as part of Reuters' Breaking Views series:

The ECB's upcoming bond-buying programme will be a confidence game. The idea is to drive down sovereign yields, and thus buy time for countries to reform and the zone to integrate financial and fiscal policies. Investors need to be convinced to start buying bonds again, allowing banks across the zone to resume lending to each other. But if anti-euro sentiment grows, markets will remain fragmented, and relief will be short-lived.

11.55 Over in Greece, the finance ministry has reported an increase in the country's total central government debt, which stood at ?303.5bn at the end of July. That's up from ?280.2bn at the end of the first three months of the year.

11.37 With all this talk of a eurozone break-up, the European Commission has been firm today, saying the euro is irreversible and that the commission isn't working on a plan that would result in a country leaving the currency bloc. Bloomberg reports that spokesman Olivier Bailly said:

?We consider that the euro is irreversible,? Bailly said, adding that European Union leaders have pledged to do everything necessary to keep the euro.

?The commission is not working on the split of the euro area, nor contingency plan, nor grexit, or any plan? that would involve a country leaving the euro area, Bailly said.

11.34 As mentioned at 10.54, Austria's chancellor has spoken out against a break-up of the eurozone, with Werner Faymann saying the break-up of the euro area or the bankruptcy of a member would do more harm than good.

It turns out that he made those comments in response to his coalition partner, vice chancellor Michael Spindelegger, who - according to the Austrian newspaper Kurier - yesterday said the euro area needed ways to expel members who violate the rules of the currency union.

11.11 German newspaper Handelsblatt reports today that the European Commission will next month propose giving the European Central Bank supervision over all of the eurozone's major banks.

Reuters has the details on Handelsblatt's report:

That would include Germany's Sparkassen savings banks and Genossenschaftsbanken cooperative banks, which Germany had hoped would be exempt when it signalled it wanted supervision only over the biggest 25 banks, the paper reported.

The Commission's proposal, due on Sept. 11, envisages national authorities supervising day-to-day business and the ECB only intervening where it sees "dangerous risks", Handelsblatt said.

Outside the euro zone, national banking supervisors would stay in charge of their banks, the paper reported.

10.58 With politicians at odds over a eurozone break-up, Neil Unmack of Reuters comments that it doesn't help Mario Draghi's cause:

Finnish and Austrian ministers are talking of a euro split again. Talk is cheap, but such statements jar with Mario Draghi's promise to fight convertibility risk. For the ECB's bond-buying to get maximum impact, politicians must learn to shut up.

10.54 But while Michael Fuchs talks about a Grexit and Finland's foreign minister says the country's preparing for a eurozone break-up, Austria's chancellor has spoken out against a break-up of the eurozone. Werner Faymann said the break-up of the euro area or the bankruptcy of a member would do more harm than good and he can't support expelling a country. He said:

The negative consequences of a eurozone breakup would by far exceed possible benefits it could have for individual countries. A sovereign bankruptcy of a euro member would have incalculable consequences for all of Europe, including Austria, and is hence not in our interest.

He added that it was necessary to take further steps to stabilise the euro area, including stricter bank supervision and further financial market regulation.

10.37 Michael Fuchs, deputy parliamentary leader of Angela Merkel's Christian Democratic Union party, has been speaking this morning. He's suggested that German banks could handle a Greek exit from the eurozone. "A theoretical exit for Greece would be manageable," he said, adding that "the exposure at this stage is about ?17bn if I'm not mistaken", virtually all of it in the public sector.

10.12 Figures out from the EU statistics office this morning show that trade volumes for the eurozone rose in the first half of the year.

Exports from the currency bloc were up 8pc from the same period in 2011, highlighting the area's dependence on external sources of growth as economic activity within the region stagnates. Imports were up just 2pc in both the first half and in June, reflecting relatively weak demand for external products.

09.49 London's blue-chips are struggling to gain much traction this morning. The FTSE 100 is up 0.13pc at 5841 while Germany's DAX is up 0.17pc to 7008. Spain's IBEX is faring better, up 1.59pc at 7536.

Michael Hewson at CMC Markets commented that "market complacency looks set to continue", pointing out that markets continue to drift higher on expectations of the prospect of additional central bank easing:

The absence of any good news has failed to dampen expectations; if anything it has reinforced the expectation that the authorities will take the necessary action to mitigate any problems in the coming weeks. The VIX certainly seems to reflect the complacency of the markets, trading as it is at 5 year lows.

The economic outlook in Europe remains pretty bleak with a recent poll suggesting that the Eurozone isn't likely to grow in any meaningful way until 2013. If anything I would suggest that even that prognosis remains optimistic. With most of the economic numbers from Europe unlikely to show a pickup any time soon it suggests that this particular rally is built more on hope than expectation and the volumes certainly reflect that.

Markets certainly are placing an awful lot of their chips on ECB President Mario Draghi being able to pluck a rabbit out of the proverbial hat at the next meeting in September.

09.31 The eurozone's current account surplus expanded in June. It grew to ?12.7bn from ?10.3bn in May, European Central Bank data showed.

AFP notes that the current account on the balance of payments, which includes imports and exports in both goods and services plus all other current transfers, is a closely tracked indicator of the ability of a country or area to pay its way in the world.

09.14 Yet more signs of stress in Spain. Banks' bad loans have risen to the highest on record, according to Bank of Spain data. In June, bad loans rose to 9.42pc of banks' portfolios, up from 8.95pc a year year.

Loans that fell into arrears increased by ?8.4bn from May, reaching ?164.4bn in June.

Since Spain's property boom ended four years ago, bad loans have ticked up, not helped by the country now being in its second recession since 2009 and one in four Spaniards out of work.

08.55 The festering debt crisis does not bode well for bankers and other financiers. Bloomberg reports that research by Oxford Economics suggests that financial firms in London, beseiged by the eurozone crisis, will probably shrink their workforce this year.

Banks, insurers and other financial services firms may eliminate a total of about 3,000 jobs across greater London, according to the research.

08.37 Angela Merkel yesterday voiced support for ECB president Mario Draghi's crisis-fighting strategy and stressed the need for a "long-term, sustainable solution".

That has helped the euro this morning. Here's how it's behaving against the dollar:

08.19 Following Ambrose's story, Finland's Europe minister has said that the foreign minister's speculation on a break-up of the eurozone does not reflect the government's position. He adds that Finland remains '100pc committed' to the euro.

08.01 Finland's foreign minister, Erkki Tuomioja, has been speaking to The Telegraph's Ambrose Evans-Pritchard. He warned that the country is preparing for a break-up of the eurozone. The Nordic state is battening down the hatches for a full-blown currency crisis as tensions in the eurozone mount and has said it will not tolerate further bail-out creep or fiscal union by stealth. Mr Tuomioja said:

We have to face openly the possibility of a euro-break up. It is not something that anybody ? even the True Finns [eurosceptic party] ? are advocating in Finland, let alone the government. But we have to be prepared. Our officials, like everybody else and like every general staff, have some sort of operational plan for any eventuality.

08.00 Good morning and welcome back to our live coverage of the European debt crisis.

Debt crisis live: archive

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