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Eurozone crisis live: Bank of England unveils £100bn to fight eurozone threat Eurozone crisis live: Bank of England unveils £100bn to fight eurozone threat
(40 minutes later)
And so belatedly (apologies) a quick trawl around the markets. 6.08pm: And so belatedly (apologies) a quick trawl around the markets.
The FTSE 100 closed 11.76 points higher at 5478.81, off its best levels but still up around 43 points on the week. Germany's Dax has added 1.48%, France's Cac 1.82%, Italy's FTSE MIB 2.34% and Spain's Ibex 0.34%. Ahead of the big poll on Sunday, the Athens market added 1.85%. The Dow Jones Industrial Average is currently up 73 points as investors bet a series of lacklustre US economic figures in the past few days could push the US Federal Reserve into introducing more measures to boost the world's biggest economy.The FTSE 100 closed 11.76 points higher at 5478.81, off its best levels but still up around 43 points on the week. Germany's Dax has added 1.48%, France's Cac 1.82%, Italy's FTSE MIB 2.34% and Spain's Ibex 0.34%. Ahead of the big poll on Sunday, the Athens market added 1.85%. The Dow Jones Industrial Average is currently up 73 points as investors bet a series of lacklustre US economic figures in the past few days could push the US Federal Reserve into introducing more measures to boost the world's biggest economy.
As for the bond markets, Spanish and Italian bond yields have edged lower, to 6.92% and 5.92% respectively.As for the bond markets, Spanish and Italian bond yields have edged lower, to 6.92% and 5.92% respectively.
With that it's time to shut up shop. Thanks for all your comments, both today and throughout the week. Back on Monday to read the runes of the Greek election, not to mention the G20 meeting in Mexico. Have a good weekend all.With that it's time to shut up shop. Thanks for all your comments, both today and throughout the week. Back on Monday to read the runes of the Greek election, not to mention the G20 meeting in Mexico. Have a good weekend all.
5.56pm: The Americans have added their weight to those trying to calm things down.5.56pm: The Americans have added their weight to those trying to calm things down.
US Treasury official Lael Brainard has told reporters that Washington would work closely with Europe to preserve market confidence following the Greek election. He said:US Treasury official Lael Brainard has told reporters that Washington would work closely with Europe to preserve market confidence following the Greek election. He said:

Everyone is well prepared, in the wake of the elections in Greece, to work together to make sure there is a path forward that is sustainable for Greece and bolsters confidence more broadly.
Everyone is well prepared, in the wake of the elections in Greece, to work together to make sure there is a path forward that is sustainable for Greece and bolsters confidence more broadly.
5.49pm: Mario Monti's government in Italy has unveiled plans worth around €80bn to help spur the economy, in a sign of a move away from austerity and towards growth.5.49pm: Mario Monti's government in Italy has unveiled plans worth around €80bn to help spur the economy, in a sign of a move away from austerity and towards growth.
It plans to sell state assets, streamline the public sector and ministry spending and introduce tax breaks for businesses, especially construction companies. As part of this it will sell three companies to state-controlled holding company Cassa Depositi e Presiti for about €10bn. Legislation comes into effect immediately but must be approved by parliament within 60 days.It plans to sell state assets, streamline the public sector and ministry spending and introduce tax breaks for businesses, especially construction companies. As part of this it will sell three companies to state-controlled holding company Cassa Depositi e Presiti for about €10bn. Legislation comes into effect immediately but must be approved by parliament within 60 days.
More here.More here.
5.36pm: More apocalyptic warnings ahead of the Greek election.5.36pm: More apocalyptic warnings ahead of the Greek election.
Former ECB board member Lorenzo Bini Smaghi said an orderly Greek exit from the eurozone was impossible and would have devastating consequences, spreading to other weaker states. We've already had a taster of how that would go, of course.Former ECB board member Lorenzo Bini Smaghi said an orderly Greek exit from the eurozone was impossible and would have devastating consequences, spreading to other weaker states. We've already had a taster of how that would go, of course.
This goes against some of the current mood music around, which seems to suggest the best thing would be to let Greece leave the euro for the sake of the rest. UK chancellor George Osborne for one has suggested more than once this week that a Greek exit might be the only way to force fundamental reform in eurozone.This goes against some of the current mood music around, which seems to suggest the best thing would be to let Greece leave the euro for the sake of the rest. UK chancellor George Osborne for one has suggested more than once this week that a Greek exit might be the only way to force fundamental reform in eurozone.
4.49pm: It's late Friday afternoon in Europe, the markets are closing so it must be time for a downgrade or some gloomy news.4.49pm: It's late Friday afternoon in Europe, the markets are closing so it must be time for a downgrade or some gloomy news.
Step forward the IMF, part of the Troika of lenders with the European Central Bank and European Commission.Step forward the IMF, part of the Troika of lenders with the European Central Bank and European Commission.
It has published its latest report on Ireland, and while approving the release of the latest €1.4bn of bailout funds, the rest makes grim reading.It has published its latest report on Ireland, and while approving the release of the latest €1.4bn of bailout funds, the rest makes grim reading.
It said Ireland - held up just now as a good pupil by Bundeskbank president Jens Weidmann - may not be able to return to the bond markets later this year, thus avoiding another bailout, unless there is a substantial improvement in market conditions.It said Ireland - held up just now as a good pupil by Bundeskbank president Jens Weidmann - may not be able to return to the bond markets later this year, thus avoiding another bailout, unless there is a substantial improvement in market conditions.
It called on Europe to help Ireland refinance its bailout and consider taking stakes in its state-owned banks. It called for more effort to stimulate growth, and at the same time cut its GDP forecast for next year from 2% to 1.9%.It called on Europe to help Ireland refinance its bailout and consider taking stakes in its state-owned banks. It called for more effort to stimulate growth, and at the same time cut its GDP forecast for next year from 2% to 1.9%.
And after its mission in Spain, the IMF said the country was likely to miss its budget deficit target of 5.3% of GDP this year. It said Spain should not try to reduce the deficit too quickly given the economic weakness.And after its mission in Spain, the IMF said the country was likely to miss its budget deficit target of 5.3% of GDP this year. It said Spain should not try to reduce the deficit too quickly given the economic weakness.
It called on Spain to increase indirect taxes like VAT - although this is likely to make the weak economy even weaker one would think - and it should act quickly against regions that do not comply with its stability plans.It called on Spain to increase indirect taxes like VAT - although this is likely to make the weak economy even weaker one would think - and it should act quickly against regions that do not comply with its stability plans.
On top of all that there are vague suggestions of a possible downgrade of Italy by Moody's.....(yes, the downgrade rumour mill is getting into gear again.)On top of all that there are vague suggestions of a possible downgrade of Italy by Moody's.....(yes, the downgrade rumour mill is getting into gear again.)
4.19pm: And for some light relief, here's everyone's favourite Not the German Chancellor:4.19pm: And for some light relief, here's everyone's favourite Not the German Chancellor:
Relaxing with a horror movie. Oh hang on, this is the videoconference.Relaxing with a horror movie. Oh hang on, this is the videoconference.
— Angela Merkel (not) (@Queen_Europe) June 15, 2012— Angela Merkel (not) (@Queen_Europe) June 15, 2012
3.50pm: More from the El País interview with Bundeskbank president Jens Weidmann.3.50pm: More from the El País interview with Bundeskbank president Jens Weidmann.
He said the idea that Spain was getting €100bn or so to bail out its banks with no conditions was already damaging sentiment and causing problems with other countries which had received bailouts on stringent terms:He said the idea that Spain was getting €100bn or so to bail out its banks with no conditions was already damaging sentiment and causing problems with other countries which had received bailouts on stringent terms:
"The impression that this is a rescue with no conditionality outside the financial system is already eroding the commitment to the terms of the existing programmes.""The impression that this is a rescue with no conditionality outside the financial system is already eroding the commitment to the terms of the existing programmes."
On Ireland and Portugal potentially asking for the same conditions and adjustments as Spain's "sweet bailout": "That's exactly the key problem. There is a discussion about relaxing the conditionality emerging in Ireland and Portugal, and also in Greece this debate is gaining new traction. But foot-dragging on addressing the structural problems will perpetuate the crisis..."On Ireland and Portugal potentially asking for the same conditions and adjustments as Spain's "sweet bailout": "That's exactly the key problem. There is a discussion about relaxing the conditionality emerging in Ireland and Portugal, and also in Greece this debate is gaining new traction. But foot-dragging on addressing the structural problems will perpetuate the crisis..."
On Spain's attempt to hold-off the bank bailout: "I think the Spanish government hesitated, hoping that there would be other means of financing with no conditionality attached."On Spain's attempt to hold-off the bank bailout: "I think the Spanish government hesitated, hoping that there would be other means of financing with no conditionality attached."
On Portugal and Ireland, the 'good' pupils: "The key message from Portugal and Ireland is that adjustment programmes work. The reforms that have been implemented there have contributed to reducing unit labour costs and stopped the decline in competitiveness. We also see the first benefits of this in the current account deficit. And according to our forecasts, growth should pick up again in these countries. No serious forecast sees a downward spiral that doesn't end anywhere."On Portugal and Ireland, the 'good' pupils: "The key message from Portugal and Ireland is that adjustment programmes work. The reforms that have been implemented there have contributed to reducing unit labour costs and stopped the decline in competitiveness. We also see the first benefits of this in the current account deficit. And according to our forecasts, growth should pick up again in these countries. No serious forecast sees a downward spiral that doesn't end anywhere."
3.44pm: Bundeskbank president Jens Weidmann has been interviewed in El País, and he doesn't seem to hold out much hope for a relaxation of Greece's bailout terms, despite what the country's various parties seem to think.3.44pm: Bundeskbank president Jens Weidmann has been interviewed in El País, and he doesn't seem to hold out much hope for a relaxation of Greece's bailout terms, despite what the country's various parties seem to think.
Here's a selection of his comments on Greece from the interview with Claudi Pérez, courtesy of our Madrid correspondent Giles Tremlett:Here's a selection of his comments on Greece from the interview with Claudi Pérez, courtesy of our Madrid correspondent Giles Tremlett:
On Greek hopes of renegotiating: "I think that would be a very dangerous strategy. It would harm those countries [such as Portugal] that are implementing reforms very quietly... the newly elected Greek government is bound by existing agreements. If it unilaterally opted out of the programme, it would mean that in my view the basis for more financial help will no longer be given. Greece would have taken its decision but would also have to bear the consequences. We will all be affected, but my assessment is that Greece will be worse off than everybody else... it will be very difficult for an insolvent country that is cut off from financial support to remain in the EMU."On Greek hopes of renegotiating: "I think that would be a very dangerous strategy. It would harm those countries [such as Portugal] that are implementing reforms very quietly... the newly elected Greek government is bound by existing agreements. If it unilaterally opted out of the programme, it would mean that in my view the basis for more financial help will no longer be given. Greece would have taken its decision but would also have to bear the consequences. We will all be affected, but my assessment is that Greece will be worse off than everybody else... it will be very difficult for an insolvent country that is cut off from financial support to remain in the EMU."
On the risks provoked by a Grexit: "This has the potential to undermine the confidence in the solidity of the monetary union.... The firewalls we have been building and strengthening are there to prevent contagion effects. And I will not be a party to the endless debate on their size. In any case, we must not allow ourselves to be blackmailed by a country because of the contagion effects."On the risks provoked by a Grexit: "This has the potential to undermine the confidence in the solidity of the monetary union.... The firewalls we have been building and strengthening are there to prevent contagion effects. And I will not be a party to the endless debate on their size. In any case, we must not allow ourselves to be blackmailed by a country because of the contagion effects."
On a possible one year extension of Greece's bailout programme: "That's a political decision that would have detrimental consequences for the Union at large."On a possible one year extension of Greece's bailout programme: "That's a political decision that would have detrimental consequences for the Union at large."
On contagion: "I don't believe in the next-in-line theory. Every country is different and if you look at the data for Italy, there are very significant differences. For instance, Italy is close to a fiscal primary surplus. I'm sceptical about the fixation on the Greek election as if it were the only issue. But it determines how the Union deals with a country that fails to live up to its commitments."On contagion: "I don't believe in the next-in-line theory. Every country is different and if you look at the data for Italy, there are very significant differences. For instance, Italy is close to a fiscal primary surplus. I'm sceptical about the fixation on the Greek election as if it were the only issue. But it determines how the Union deals with a country that fails to live up to its commitments."
3.29pm: And here's a quick recap of how the debate over how to save the eurozone usually goes:3.29pm: And here's a quick recap of how the debate over how to save the eurozone usually goes:
ECB says something that Germany will promptly say no to. And so onECB says something that Germany will promptly say no to. And so on
— zerohedge (@zerohedge) June 15, 2012— zerohedge (@zerohedge) June 15, 2012
3.17pm: As G20 leaders converse ahead of the Mexico summit early next week, former UK prime minister Gordon Brown, has some rather dramatic thoughts on the key issues.3.17pm: As G20 leaders converse ahead of the Mexico summit early next week, former UK prime minister Gordon Brown, has some rather dramatic thoughts on the key issues.
In a blogpost written for Reuters, Brown says the crisis is no longer a European one, and decisive, concerted action is needed from the G20, not just bland statements:In a blogpost written for Reuters, Brown says the crisis is no longer a European one, and decisive, concerted action is needed from the G20, not just bland statements:

This is the last chance.
This is the last chance.
The standard, but often empty, language of summit communiqués will simply not do when the euro area is finally approaching its own day of reckoning. Whichever way the Greeks vote in Sunday's election, a chaotic exit from the euro is becoming more likely: Its tax revenues are collapsing, not rising as promised.The standard, but often empty, language of summit communiqués will simply not do when the euro area is finally approaching its own day of reckoning. Whichever way the Greeks vote in Sunday's election, a chaotic exit from the euro is becoming more likely: Its tax revenues are collapsing, not rising as promised.
Unable to regain access to markets, Portugal and Ireland will soon have to ask for their second IMF programs. Sadly Italy – and potentially even France – may soon follow Spain in needing finance as the European recession deepens. Even German banks, which are some of the most highly leveraged, are not immune from needing more capital.Unable to regain access to markets, Portugal and Ireland will soon have to ask for their second IMF programs. Sadly Italy – and potentially even France – may soon follow Spain in needing finance as the European recession deepens. Even German banks, which are some of the most highly leveraged, are not immune from needing more capital.
[World leaders] must not leave Mexico without agreeing to support a big European firewall to stop contagion. And they must construct a global growth initiative for East and West.[World leaders] must not leave Mexico without agreeing to support a big European firewall to stop contagion. And they must construct a global growth initiative for East and West.
3.13pm: And more downbeat US economic news, ahead of next week's meeting of the US Federal Reserve.3.13pm: And more downbeat US economic news, ahead of next week's meeting of the US Federal Reserve.
The Thomson Reuters/University of Michigan consumer confidence index for June fell to 74.1 from 79.3 the previous month. This is below expectations of 77.5, said to be the biggest miss since February 2006.The Thomson Reuters/University of Michigan consumer confidence index for June fell to 74.1 from 79.3 the previous month. This is below expectations of 77.5, said to be the biggest miss since February 2006.
Annalisa Piazza at Newedge Strategy said:Annalisa Piazza at Newedge Strategy said:

Disappointing news on the development of the US economy continue to emerge, ahead of next week's FOMC meeting. After a sharp decline in the New York Empire index and easing industrial production, the latest development of consumer confidence is also not encouraging. Today's outcome is weaker than anticipated and it marks the first downward correction since August 2011 when the US economy was experiencing a mild moderation in activity.
Disappointing news on the development of the US economy continue to emerge, ahead of next week's FOMC meeting. After a sharp decline in the New York Empire index and easing industrial production, the latest development of consumer confidence is also not encouraging. Today's outcome is weaker than anticipated and it marks the first downward correction since August 2011 when the US economy was experiencing a mild moderation in activity.
And of course, the Dow edges even higher (up 65 points now) in the expectation that the Fed will indeed step in and do something next week.And of course, the Dow edges even higher (up 65 points now) in the expectation that the Fed will indeed step in and do something next week.
3.02pm: Anyone wondering what's happening with Cyprus, one of the next on the list of possible bailout candidates, wonder no more.3.02pm: Anyone wondering what's happening with Cyprus, one of the next on the list of possible bailout candidates, wonder no more.
The government is "working away from the glare of publicity" to find a way to recapitalise its banking system, according to Reuters. Its second largest bank needs extra cash by the end of the month, so it's good to know there's no slacking going on.The government is "working away from the glare of publicity" to find a way to recapitalise its banking system, according to Reuters. Its second largest bank needs extra cash by the end of the month, so it's good to know there's no slacking going on.
On a serious note, the president is apparently going to meet political parties soon to brief them. Cyprus is expected to seek aid from the EU, or alternatively, receive funding from elsewhere, perhaps Russia.On a serious note, the president is apparently going to meet political parties soon to brief them. Cyprus is expected to seek aid from the EU, or alternatively, receive funding from elsewhere, perhaps Russia.
Meanwhile the odds of the country being next-but-one to leave the euro (I think we know what the first one is expected to be) have shortened from 12/1 three weeks ago to 9/4 according to Paddy Power.Meanwhile the odds of the country being next-but-one to leave the euro (I think we know what the first one is expected to be) have shortened from 12/1 three weeks ago to 9/4 according to Paddy Power.
2.54pm: Following the weak US industrial production figures, Wall Street has opened higher, on the basis the Federal Reserve is likely to act to try and boost the world's biggest economy after a series of lacklustre data.2.54pm: Following the weak US industrial production figures, Wall Street has opened higher, on the basis the Federal Reserve is likely to act to try and boost the world's biggest economy after a series of lacklustre data.
The Dow Jones Industrial Average is up around 56 points in early trading, giving some support to the FTSE 100 which had started to look shaky after a promising start. The UK index is now up 17 points or so, having slipped into negative territory ahead of the US open. European markets are faring better, with the Dax and Cac both up more than 1%. In bondland, both Spanish and Italian yields have edged lower.The Dow Jones Industrial Average is up around 56 points in early trading, giving some support to the FTSE 100 which had started to look shaky after a promising start. The UK index is now up 17 points or so, having slipped into negative territory ahead of the US open. European markets are faring better, with the Dax and Cac both up more than 1%. In bondland, both Spanish and Italian yields have edged lower.
2.38pm: I'm off - thanks for all your comments and have a great weekend. Handing over to my colleague Nick Fletcher now. I'll be back on Monday to report on the fallout from the Greek election.2.38pm: I'm off - thanks for all your comments and have a great weekend. Handing over to my colleague Nick Fletcher now. I'll be back on Monday to report on the fallout from the Greek election.
2.18pm: US industrial production has come in weaker than expected, continuing the theme of disappointing economic data this week - and bolstering expectations of more QE.2.18pm: US industrial production has come in weaker than expected, continuing the theme of disappointing economic data this week - and bolstering expectations of more QE.
Industrial output fell by 0.1% in May, versus April's 1% gain and Wall Street forecasts of a small increase, according to official figures. Manufactuirng output was down 0.4%, following a 0.7% rise in April, while mining increased by 0.9%, more than reversing April's 0.6% fall. Utilities were 0.8% ahead, against April's 5.3% jump.Industrial output fell by 0.1% in May, versus April's 1% gain and Wall Street forecasts of a small increase, according to official figures. Manufactuirng output was down 0.4%, following a 0.7% rise in April, while mining increased by 0.9%, more than reversing April's 0.6% fall. Utilities were 0.8% ahead, against April's 5.3% jump.
2.05pm: The FTSE has given up most of its gains; it briefly turned negative and is now up just 4 points at 5471. We are waiting for US industrial production data, out at 2.15pm.2.05pm: The FTSE has given up most of its gains; it briefly turned negative and is now up just 4 points at 5471. We are waiting for US industrial production data, out at 2.15pm.
1.24pm: Cash-strapped Spaniards are ditching their mobile phones: Spanish mobile phone operators lost a record number of customers in April, led by an exodus from Telefonica and Vodafone, as they stopped cut-price deals for smartphones for cash-strapped consumers.1.24pm: Cash-strapped Spaniards are ditching their mobile phones: Spanish mobile phone operators lost a record number of customers in April, led by an exodus from Telefonica and Vodafone, as they stopped cut-price deals for smartphones for cash-strapped consumers.
Spain's telecoms watchdog said around 380,000 customers ditched their mobile phones, the third monthly decline in the austerity-crippled country where one in four is out of work. The prepay sector alone lost 297,984 customers.Spain's telecoms watchdog said around 380,000 customers ditched their mobile phones, the third monthly decline in the austerity-crippled country where one in four is out of work. The prepay sector alone lost 297,984 customers.
1.02pm: German president Joachim Gauck said just now that Germany had no interest in splitting up the eurozone into stronger and weaker members - a two-speed Europe.1.02pm: German president Joachim Gauck said just now that Germany had no interest in splitting up the eurozone into stronger and weaker members - a two-speed Europe.
Speaking at a press conference in Rome with Italian president Giorgio Napolitano, he said a core group of stronger states was "the worst scenario" that could emerge from the current crisis.Speaking at a press conference in Rome with Italian president Giorgio Napolitano, he said a core group of stronger states was "the worst scenario" that could emerge from the current crisis.
I have never heard members of the federal [German] government discuss a two-speed Europe.I have never heard members of the federal [German] government discuss a two-speed Europe.
12.53pm: An amusing tweet from Barnaby Phillips, correspondent for Al Jazeera English.12.53pm: An amusing tweet from Barnaby Phillips, correspondent for Al Jazeera English.
#Greece crisis has occasional winners. Head of German language school says he must expand to meet demand from those who want to emigrate#Greece crisis has occasional winners. Head of German language school says he must expand to meet demand from those who want to emigrate
— Barnaby Phillips (@BarnabyPhillips) June 15, 2012— Barnaby Phillips (@BarnabyPhillips) June 15, 2012
12.46pm: David Cameron will hold a video conference call on Friday afternoon with European leaders attending the G20 summit in Mexico next week in a bid to forge a common position on the eurozone crisis.12.46pm: David Cameron will hold a video conference call on Friday afternoon with European leaders attending the G20 summit in Mexico next week in a bid to forge a common position on the eurozone crisis.
The leaders will consider any emergency measures that may need to be taken when the markets open on Monday in the wake of the Greek elections on Sunday. More here.The leaders will consider any emergency measures that may need to be taken when the markets open on Monday in the wake of the Greek elections on Sunday. More here.
12.05am: Here is our lunchtime round-up:12.05am: Here is our lunchtime round-up:
• European stock markets are up amid hopes that the major central banks are prepared to take concerted action next week to head off Armageddon - last night Reuters quoted a G20 source saying that the central banks of major economies stood ready to provide extra liquidity if needed.• European stock markets are up amid hopes that the major central banks are prepared to take concerted action next week to head off Armageddon - last night Reuters quoted a G20 source saying that the central banks of major economies stood ready to provide extra liquidity if needed.
The FTSE is 33 points ahead, or 0.6%, at 5500, led by banking stocks. Germany's Dax has gained 1.1% to 6206, while France's CAC has added 1.7%, to 3083. Spain's Ibex is up 1.1% at 6768 and Italy's FTSE MiB has leapt 2.27% to 13379.The FTSE is 33 points ahead, or 0.6%, at 5500, led by banking stocks. Germany's Dax has gained 1.1% to 6206, while France's CAC has added 1.7%, to 3083. Spain's Ibex is up 1.1% at 6768 and Italy's FTSE MiB has leapt 2.27% to 13379.
• Spanish and Italian bond yields fall back: The Spanish ten-year bond has dropped to 6.9% while its Italian equivalent has fallen below 6%, to 5.99%.• Spanish and Italian bond yields fall back: The Spanish ten-year bond has dropped to 6.9% while its Italian equivalent has fallen below 6%, to 5.99%.
• The Bank of England's emergency package has been cautiously welcomed by the City• The Bank of England's emergency package has been cautiously welcomed by the City
• Harvard professor Niall Ferguson warns that a 'Lehman moment could be close'• Harvard professor Niall Ferguson warns that a 'Lehman moment could be close'
11.56am: Harvard professor Niall Ferguson told Bloomberg TV this morning that a Lehman moment could be close, with Greek elections on Sunday expected to determine the country's fate in the eurozone. He talked of a 21st century Cuban missile crisis.11.56am: Harvard professor Niall Ferguson told Bloomberg TV this morning that a Lehman moment could be close, with Greek elections on Sunday expected to determine the country's fate in the eurozone. He talked of a 21st century Cuban missile crisis.
"If there's going to be a Lehman moment in the crisis it's going to be next week," he explained, saying that the back-and-forth between Athens and Berlin is "a game of chicken" that will not be resolved until the power structure in Greece has been decided."If there's going to be a Lehman moment in the crisis it's going to be next week," he explained, saying that the back-and-forth between Athens and Berlin is "a game of chicken" that will not be resolved until the power structure in Greece has been decided.
Another frightening analogy:Another frightening analogy:
It's not clear who's going to blink at this point. My guess is that, in the end, there will be a bit of blinking on both sides. This is the financial equivalent of the Cuban Missile Crisis. And the missile is really a bank run, which ultimately even the Germans can't be completely immune to. Not that there will ever be a run on German banks, but the effects of a bank run right across Southern Europe are going to be felt by the economy. German policymakers know that; they're just having to say one thing to their own voters and another thing privately to other European leaders.It's not clear who's going to blink at this point. My guess is that, in the end, there will be a bit of blinking on both sides. This is the financial equivalent of the Cuban Missile Crisis. And the missile is really a bank run, which ultimately even the Germans can't be completely immune to. Not that there will ever be a run on German banks, but the effects of a bank run right across Southern Europe are going to be felt by the economy. German policymakers know that; they're just having to say one thing to their own voters and another thing privately to other European leaders.
11.39am: A UBS note published today says the eurozone will continue to be a "rolling crisis" but a euro breakup is unlikely. Under a worst case scenario the FTSE 100 index could fall back to 3,500, from 5495 now.11.39am: A UBS note published today says the eurozone will continue to be a "rolling crisis" but a euro breakup is unlikely. Under a worst case scenario the FTSE 100 index could fall back to 3,500, from 5495 now.
Eurozone crisis: scenario analysis
Today, our global economics team has looked into the impact of an uglier default and exit scenario. Model simulations suggest a reduction in the level of Eurozone GDP by 4.8ppts after one year and UK GDP 2ppts lower than current estimates. Those same simulations suggest a Greek exit would produce a global recession, though not quite as deep as that of 2008 – 2009.		Eurozone crisis: scenario analysis
Today, our global economics team has looked into the impact of an uglier default and exit scenario. Model simulations suggest a reduction in the level of Eurozone GDP by 4.8ppts after one year and UK GDP 2ppts lower than current estimates. Those same simulations suggest a Greek exit would produce a global recession, though not quite as deep as that of 2008 – 2009.
The 'rolling crisis' continues
We continue to see the Eurozone as a 'rolling crisis': we come to a crisis point and then there is policy response to bring us back from the brink. Our analysis shows that it is the policy response that allows markets to re-rate. We remain of the view that a Euro break-up is unlikely, given our economists' work suggesting the cost is too large for both those leaving and those remaining.		The 'rolling crisis' continues
We continue to see the Eurozone as a 'rolling crisis': we come to a crisis point and then there is policy response to bring us back from the brink. Our analysis shows that it is the policy response that allows markets to re-rate. We remain of the view that a Euro break-up is unlikely, given our economists' work suggesting the cost is too large for both those leaving and those remaining.
A 'black sky' scenario could see the FTSE 100 back at 3,500
We continue to target the FTSE 100 at 5,800 by year-end, but under a 'black sky' break-up scenario the index could fall back to 3,500. This scenario is based on earnings down 20% (base case +7%) in 2013 derived from our economists' new negative scenarios on a distressed P/E multiple of 8.5x (base case 10.5x).		A 'black sky' scenario could see the FTSE 100 back at 3,500
We continue to target the FTSE 100 at 5,800 by year-end, but under a 'black sky' break-up scenario the index could fall back to 3,500. This scenario is based on earnings down 20% (base case +7%) in 2013 derived from our economists' new negative scenarios on a distressed P/E multiple of 8.5x (base case 10.5x).
11.28am: More reaction to the UK's emergency package from two think tanks. The Institute of Directors doubts it will stimulate more business lending. The Centre for Economics and Business Research tends to agree but adds that it should help boost mortgage lending.11.28am: More reaction to the UK's emergency package from two think tanks. The Institute of Directors doubts it will stimulate more business lending. The Centre for Economics and Business Research tends to agree but adds that it should help boost mortgage lending.
Graeme Leach, chief economist at the IoD, said:Graeme Leach, chief economist at the IoD, said:
Facing a bombardment from the eurozone the chancellor and governor are calling up the reserves. Defensive measures need to be put in place and they're making sure everyone knows they've done it. The extended liquidity and funding for lending schemes are welcome, but limited.Facing a bombardment from the eurozone the chancellor and governor are calling up the reserves. Defensive measures need to be put in place and they're making sure everyone knows they've done it. The extended liquidity and funding for lending schemes are welcome, but limited.
The liquidity scheme will need to be massively expanded if break-up and contagion spread across the euro zone. The 'funding for lending' scheme helps the supply of money and the demand for it, by lowering the cost of borrowing. But the core problem remains. Companies alarmed by the euro crisis will not be eager to borrow regardless of the cost.The liquidity scheme will need to be massively expanded if break-up and contagion spread across the euro zone. The 'funding for lending' scheme helps the supply of money and the demand for it, by lowering the cost of borrowing. But the core problem remains. Companies alarmed by the euro crisis will not be eager to borrow regardless of the cost.
However, CEBR chief executive Douglas McWilliams said:However, CEBR chief executive Douglas McWilliams said:
The governor of the Bank of England made the more important speech last night. Normally the chancellor takes the headlines. But his announcement that he is going to implement a watered down version of the Vickers report to regulate banks was hardly sexy. And it is not clear that a new framework which will cut bank lending and add to the costs of banking for each household by up to £250 a year is exactly what is required as the economy slithers into crisis.The governor of the Bank of England made the more important speech last night. Normally the chancellor takes the headlines. But his announcement that he is going to implement a watered down version of the Vickers report to regulate banks was hardly sexy. And it is not clear that a new framework which will cut bank lending and add to the costs of banking for each household by up to £250 a year is exactly what is required as the economy slithers into crisis.
So the governor indicated that up to £140bn of what is effectively another form of QE more closely targeted at bank lending would be made available.

The Treasury have indicated that they think that the scheme will be a success if it leads to an additional £80bn of lending. Although the BBC was full of siren voices this morning predicting failure, I am not so sure.		So the governor indicated that up to £140bn of what is effectively another form of QE more closely targeted at bank lending would be made available.

The Treasury have indicated that they think that the scheme will be a success if it leads to an additional £80bn of lending. Although the BBC was full of siren voices this morning predicting failure, I am not so sure.
I doubt if the mechanism will have more than a marginal impact on most forms of corporate lending. But it might have an effect in two areas: commercial property and home mortgages.I doubt if the mechanism will have more than a marginal impact on most forms of corporate lending. But it might have an effect in two areas: commercial property and home mortgages.
The UK still has a lively commercial property market despite the state of the economy and this additional access to money looks to be highly suitable to provide additional finance for the sector.The UK still has a lively commercial property market despite the state of the economy and this additional access to money looks to be highly suitable to provide additional finance for the sector.
And by making mortgage lending more easily available, it will be possible for lenders to edge up loan to value ratios which could slash the deposits required from first time buyers by as much as a quarter.And by making mortgage lending more easily available, it will be possible for lenders to edge up loan to value ratios which could slash the deposits required from first time buyers by as much as a quarter.
11.20am: Following news that French supermarket giant Carrefour is pulling out of Greece, Italian carmaker Fiat said it was cutting its investment in new products because of the eurozone crisis.11.20am: Following news that French supermarket giant Carrefour is pulling out of Greece, Italian carmaker Fiat said it was cutting its investment in new products because of the eurozone crisis.
The company has reduced its capital expenditure target by half a billion euros to €7bn. A spokesman said:The company has reduced its capital expenditure target by half a billion euros to €7bn. A spokesman said:
There are no programme cancellations, just a slowdown in development. That's obviously due to the European car market is which continuing to slip.There are no programme cancellations, just a slowdown in development. That's obviously due to the European car market is which continuing to slip.
10.44am: Merkel also took a swipe at the new French president François Holland's pro-growth policies, saying Europe needs to discuss the widening economic divergence between France and Germany.10.44am: Merkel also took a swipe at the new French president François Holland's pro-growth policies, saying Europe needs to discuss the widening economic divergence between France and Germany.
She told a meeting of German entrepreneurs:She told a meeting of German entrepreneurs:
Europe must discuss the growing differences in economic strength between France and Germany.Europe must discuss the growing differences in economic strength between France and Germany.
10.35am: Angela Merkel is speaking again. Echoing comments she made yesterday in a speech to the German parliament, she is once again drumming home the message that Germany can't do much more in this crisis - despite huge pressure on Europe's largest economy to ease its austerity drive in Europe and get its cheque book out. "Germany's strength is not infinite," she says. She also reiterated her opposition to quick fixes such as euro bonds.10.35am: Angela Merkel is speaking again. Echoing comments she made yesterday in a speech to the German parliament, she is once again drumming home the message that Germany can't do much more in this crisis - despite huge pressure on Europe's largest economy to ease its austerity drive in Europe and get its cheque book out. "Germany's strength is not infinite," she says. She also reiterated her opposition to quick fixes such as euro bonds.
10.13am: Turning to the ECB, its president Mario Draghi talked about "serious" risks to the eurozone this morning and said the eurosystem of eurozone central banks would "continue to supply liquidity to solvent banks where needed". There are no inflation risks, he said, leaving the door open to further interest rate cuts. The bank left its main interest rate at 1% last week but expectations of more rate cuts have grown.10.13am: Turning to the ECB, its president Mario Draghi talked about "serious" risks to the eurozone this morning and said the eurosystem of eurozone central banks would "continue to supply liquidity to solvent banks where needed". There are no inflation risks, he said, leaving the door open to further interest rate cuts. The bank left its main interest rate at 1% last week but expectations of more rate cuts have grown.
However, he also noted that the ECB had supported banks with €1 trillion in emergency credit, saying that now "political choices have become predominant over monetary policy instruments that we can use in the near future".However, he also noted that the ECB had supported banks with €1 trillion in emergency credit, saying that now "political choices have become predominant over monetary policy instruments that we can use in the near future".
Draghi told the annual ECB Watchers conference in Frankfurt:Draghi told the annual ECB Watchers conference in Frankfurt:
There are serious downside risks here. This risk has to do mostly with the heightened uncertainty.There are serious downside risks here. This risk has to do mostly with the heightened uncertainty.
The ECB has the crucial role of providing liquidity to sound bank counterparties in return for adequate collateral. This is what we have done throughout the crisis, faithful to our mandate of maintaining price stability over the medium term - and this is what we will continue to do.The ECB has the crucial role of providing liquidity to sound bank counterparties in return for adequate collateral. This is what we have done throughout the crisis, faithful to our mandate of maintaining price stability over the medium term - and this is what we will continue to do.
ECB policymaker Ewald Nowotny said the bank has the ability to lower interest rates if the eurozone economy continues to worsen, and could even slash the rate that controls money market rates to zero.ECB policymaker Ewald Nowotny said the bank has the ability to lower interest rates if the eurozone economy continues to worsen, and could even slash the rate that controls money market rates to zero.
And ECB policymaker Peter Praet said eurozone countries need to surrender some of their sovereignty if the euro is to survive, adding that the central bank can only provide temporary crisis relief and that governments must tackle the underlying problems.And ECB policymaker Peter Praet said eurozone countries need to surrender some of their sovereignty if the euro is to survive, adding that the central bank can only provide temporary crisis relief and that governments must tackle the underlying problems.
Further steps will need to be taken in order to supplement the single monetary policy with a more integrated framework for bank supervision, resolution and deposit insurance.Further steps will need to be taken in order to supplement the single monetary policy with a more integrated framework for bank supervision, resolution and deposit insurance.
If we are to achieve this, euro area countries will inevitably need to surrender more national sovereignty.If we are to achieve this, euro area countries will inevitably need to surrender more national sovereignty.
10.03am: Throwing money at the banks won't solve the economic crisis, says shadow chancellor Ed Balls - agreeing with our readers. The Guardian's political editor Patrick Wintour reports:10.03am: Throwing money at the banks won't solve the economic crisis, says shadow chancellor Ed Balls - agreeing with our readers. The Guardian's political editor Patrick Wintour reports:

The shadow chancellor said the Bank of England's thinking still seemed to be driven by Montagu Norman, the governor who led it through the depression of the 1930s.
The shadow chancellor said the Bank of England's thinking still seemed to be driven by Montagu Norman, the governor who led it through the depression of the 1930s.
He said the measures announced on Thursday night at the Mansion House in London by the chancellor, George Osborne, and the bank's governor, Mervyn King, should have been implemented two years ago and would not work if businesses were not investing.He said the measures announced on Thursday night at the Mansion House in London by the chancellor, George Osborne, and the bank's governor, Mervyn King, should have been implemented two years ago and would not work if businesses were not investing.
9.54am: And Howard Archer, chief UK and European economist at IHS Global Insight, says the weak trade data heighten the risk of another GDP contraction in the second quarter.9.54am: And Howard Archer, chief UK and European economist at IHS Global Insight, says the weak trade data heighten the risk of another GDP contraction in the second quarter.
The April trade data are very disappointing, increasing the risk that net trade will again be negative in the second quarter and that the economy will suffer further contraction, especially as it is handicapped by the extra day's public holiday that resulted from the Queen's Diamond Jubilee celebrations.The April trade data are very disappointing, increasing the risk that net trade will again be negative in the second quarter and that the economy will suffer further contraction, especially as it is handicapped by the extra day's public holiday that resulted from the Queen's Diamond Jubilee celebrations.
9.51am: Vicky Redwood, chief UK economist at Capital Economics, says the poor UK trade and construction figures out this morning will dampen any positive mood following last night's policy announcements.9.51am: Vicky Redwood, chief UK economist at Capital Economics, says the poor UK trade and construction figures out this morning will dampen any positive mood following last night's policy announcements.
The deficit with the EU increased, but the main deterioration was actually outside the EU. The driver was a plunge in exports – exported goods volumes to all areas fell by 7.7% m/m. The near-term outlook doesn't look much better, either. Survey measures of export orders have fallen recently, with the CIPS measure now well below the 50 mark. Meanwhile, construction output dropped by 13% m/m in April (although the figures are not seasonally adjusted).The deficit with the EU increased, but the main deterioration was actually outside the EU. The driver was a plunge in exports – exported goods volumes to all areas fell by 7.7% m/m. The near-term outlook doesn't look much better, either. Survey measures of export orders have fallen recently, with the CIPS measure now well below the 50 mark. Meanwhile, construction output dropped by 13% m/m in April (although the figures are not seasonally adjusted).
Overall, even if the measures announced last night succeed in easing strains in the banking sector, it is clear that rising bank funding costs are just one constraint on the economic recovery. With the eurozone economy still weakening, the trade figures are only likely to get worse.Overall, even if the measures announced last night succeed in easing strains in the banking sector, it is clear that rising bank funding costs are just one constraint on the economic recovery. With the eurozone economy still weakening, the trade figures are only likely to get worse.
9.47am: The latest UK trade figures are out. My colleague Josephine Moulds reports:9.47am: The latest UK trade figures are out. My colleague Josephine Moulds reports:
A drop in sales of chemicals and cars to non-EU countries left Britain's goods trade gap wider than expected in April, cementing concerns that exporters face a tough year ahead.A drop in sales of chemicals and cars to non-EU countries left Britain's goods trade gap wider than expected in April, cementing concerns that exporters face a tough year ahead.
The Office for National Statistics said the UK's goods trade deficit widened to £10.1bn, compared with forecasts of a gap of £8.5bn and a deficit of £8.7bn in March. Exports to non-EU countries dropped 10.3%, while imports from those countries slipped back by just 1.9%. Exports to EU countries also dropped 6.8%, while imports fell 3%.The Office for National Statistics said the UK's goods trade deficit widened to £10.1bn, compared with forecasts of a gap of £8.5bn and a deficit of £8.7bn in March. Exports to non-EU countries dropped 10.3%, while imports from those countries slipped back by just 1.9%. Exports to EU countries also dropped 6.8%, while imports fell 3%.
9.31am: Right, here is a round-up of readers' comments on the UK's latest emergency package. Needless to say most of them are sceptical...9.31am: Right, here is a round-up of readers' comments on the UK's latest emergency package. Needless to say most of them are sceptical...
josephinireland says:josephinireland says:
What was announced at the Mansion House last night can be summed up in four words:What was announced at the Mansion House last night can be summed up in four words:
"It helps the banks.""It helps the banks."
One thing is for sure though. If Mr King is this worried, he must know just how bad it really is in Euroland. So much gets hidden from us by TPTB and disables us from making good decisions to protect ourselves.One thing is for sure though. If Mr King is this worried, he must know just how bad it really is in Euroland. So much gets hidden from us by TPTB and disables us from making good decisions to protect ourselves.
I've already moved half my savings to £. The other half is going to CHF as soon as I've opened the account today.I've already moved half my savings to £. The other half is going to CHF as soon as I've opened the account today.
Anyone out there holding Euros, I suggest you move em. This is a red flag.Anyone out there holding Euros, I suggest you move em. This is a red flag.
neilwilson adds:neilwilson adds:
The Bank will lend the money at a minimum of Bank rate, which is currently 0.5%, plus an additional 25 basis points. Which is exactly the same as the uncollateralised overnight facility that all clearing banks have anyway, and the interest rate has no prospect of going anywhere any time soon.The Bank will lend the money at a minimum of Bank rate, which is currently 0.5%, plus an additional 25 basis points. Which is exactly the same as the uncollateralised overnight facility that all clearing banks have anyway, and the interest rate has no prospect of going anywhere any time soon.
So again it is based on the belief that jiggling longer term rates will have some actual effect in the economy.So again it is based on the belief that jiggling longer term rates will have some actual effect in the economy.
The Extended time period facility is only available to those banks hooked up to the Discount Window. Does anybody know if that is a wider set of banks and building societies than the Operational Standing Facility?The Extended time period facility is only available to those banks hooked up to the Discount Window. Does anybody know if that is a wider set of banks and building societies than the Operational Standing Facility?
spiceof says:spiceof says:
So the Bank of England lends further monies to the private banking sector hoping that some of that cash might be lent out to the business sector. We've been here before, all smoke and mirrors, just another way of keeping the banks going.So the Bank of England lends further monies to the private banking sector hoping that some of that cash might be lent out to the business sector. We've been here before, all smoke and mirrors, just another way of keeping the banks going.
Hyperzeitgeist adds:Hyperzeitgeist adds:
This is just the beginning of the 'endgame'. When all else has failed the central bankers and their political masters know no other solution than to print money. In a purely fiat based system the only outcome will be to carry on printing until that currency is worthless.This is just the beginning of the 'endgame'. When all else has failed the central bankers and their political masters know no other solution than to print money. In a purely fiat based system the only outcome will be to carry on printing until that currency is worthless.
ayupmeduck2 has this:ayupmeduck2 has this:
The banks will find a way of using this 100 billion to simply rotate their portfolio. It will go something like this:The banks will find a way of using this 100 billion to simply rotate their portfolio. It will go something like this:
1. Give the BoE the most dodgy collateral you have, and swap it for that new solid cash.1. Give the BoE the most dodgy collateral you have, and swap it for that new solid cash.
2. As any refinancing etc. comes up assign the most dodgy loans to be part of this new scheme and therefore make the taxpayer liable for any losses while calling it "new lending", thus if it goes well the bank can take the profit, if it goes bad then it will be the taxpayers problem.2. As any refinancing etc. comes up assign the most dodgy loans to be part of this new scheme and therefore make the taxpayer liable for any losses while calling it "new lending", thus if it goes well the bank can take the profit, if it goes bad then it will be the taxpayers problem.
If any of this seems too blatant, then I'm sure there is somebody at Goldmann Sachs that oil the wheels. They will create some sort of "product" that makes the whole process opaque.If any of this seems too blatant, then I'm sure there is somebody at Goldmann Sachs that oil the wheels. They will create some sort of "product" that makes the whole process opaque.
This Extended Collateral Term Repo Facility, which is just like the EU LTRO, will become just another back door bank bailout program.This Extended Collateral Term Repo Facility, which is just like the EU LTRO, will become just another back door bank bailout program.
speedyp says:speedyp says:
What a fantastic idea. Give tons of money to your banker chums if they promise to share it out. Like they did last time...What a fantastic idea. Give tons of money to your banker chums if they promise to share it out. Like they did last time...
Real out of the box thinking. As Rebekah said "we're all in this together".Real out of the box thinking. As Rebekah said "we're all in this together".
Try dishing out 5 billion a week to the people who actually do all the living, working & dying in this country if you want to improve things.Try dishing out 5 billion a week to the people who actually do all the living, working & dying in this country if you want to improve things.
And Slidewinder says:And Slidewinder says:
Here's to super-inflation in 2013!Here's to super-inflation in 2013!
9.18am: French supermarket chain Carrefour is pulling out of Greece ahead of Sunday's elections. It said today it would sell its stake in a Greek joint venture to its partner there, Marinopoulos, taking a €220m hit. Who else will join the exodus from Greece?9.18am: French supermarket chain Carrefour is pulling out of Greece ahead of Sunday's elections. It said today it would sell its stake in a Greek joint venture to its partner there, Marinopoulos, taking a €220m hit. Who else will join the exodus from Greece?
9.16am: George Osborne was listening attentively to Sir Mervyn King last night, who said:9.16am: George Osborne was listening attentively to Sir Mervyn King last night, who said:
The black cloud has dampened animal spirits so that businesses and households are battening down the hatches to prepare for the storms.The black cloud has dampened animal spirits so that businesses and households are battening down the hatches to prepare for the storms.
9.04am: The Bank England's new "funding for lending" programme is badly needed. Data from the Bank show that loans to non-financial companies - the backbone of the economy - have fallen by about £90bn, or 20%, since the peak in October 2008, as the Financial Times reported.9.04am: The Bank England's new "funding for lending" programme is badly needed. Data from the Bank show that loans to non-financial companies - the backbone of the economy - have fallen by about £90bn, or 20%, since the peak in October 2008, as the Financial Times reported.
8.53am: Encouragingly, Spanish and Italian bond yields have fallen back this morning. Spanish ten-year yields, which breached 7% yesterday, are down 10 basis points at 6.85% in early trading while the Italian equivalent is just a shade over 6%, also down 10 bps.8.53am: Encouragingly, Spanish and Italian bond yields have fallen back this morning. Spanish ten-year yields, which breached 7% yesterday, are down 10 basis points at 6.85% in early trading while the Italian equivalent is just a shade over 6%, also down 10 bps.
European shares have moved higher, with Spain's Ibex and Italy's FTSE MiB now both up 1.3%. The FTSE has climbed 0.6%, Germany's Dax is 0.8% ahead and France's CAC 0.9%. Banking stocks were the main gainers on the FTSE, led by Royal Bank of Scotland, Lloyds Banking Group and Barclays.European shares have moved higher, with Spain's Ibex and Italy's FTSE MiB now both up 1.3%. The FTSE has climbed 0.6%, Germany's Dax is 0.8% ahead and France's CAC 0.9%. Banking stocks were the main gainers on the FTSE, led by Royal Bank of Scotland, Lloyds Banking Group and Barclays.
The mood is being helped by persistent talk of further monetary stimulus from the Fed and the ECB if there is a market meltdown following the Greek elections on Sunday. The Fed meets next Tuesday and Wednesday. Recent US figures have been weak, raising expectations of more quantitative easing. Industrial production data are out at 1.30pm today.The mood is being helped by persistent talk of further monetary stimulus from the Fed and the ECB if there is a market meltdown following the Greek elections on Sunday. The Fed meets next Tuesday and Wednesday. Recent US figures have been weak, raising expectations of more quantitative easing. Industrial production data are out at 1.30pm today.
8.47am: Citi economist Michael Saunders notes that Sir Mervyn King last night abruptly shifted the Bank of England's stance on the economy and policy outlook. Saunders reckons that the emergency measures as they are won't be enough to tackle the growing crisis.8.47am: Citi economist Michael Saunders notes that Sir Mervyn King last night abruptly shifted the Bank of England's stance on the economy and policy outlook. Saunders reckons that the emergency measures as they are won't be enough to tackle the growing crisis.
First, he acknowledged that the economy has underperformed and is likely to stay weak: "Instead of a gradual recovery, output has been broadly flat…Since our Inflation Report only four weeks ago, conditions have deteriorated with weakening business surveys, a downward revision to measured output, and further slowing in economies overseas."First, he acknowledged that the economy has underperformed and is likely to stay weak: "Instead of a gradual recovery, output has been broadly flat…Since our Inflation Report only four weeks ago, conditions have deteriorated with weakening business surveys, a downward revision to measured output, and further slowing in economies overseas."
King stressed in particular the widespread adverse effects of the EMU crisis on the UK economy, hitting exports, raising bank funding costs and creating a general mood of caution that encourages firms and households to delay spending. The governor reiterated (a point he has made before) that the EMU crisis will not end until its underlying causes - deep economic problems in periphery countries and widespread weakness in euro area banks – are resolved: "Until losses are recognised, and reflected in balance sheets, the current problems will drag on. An honest recognition of those losses would require a major recapitalisation of the European banking system."King stressed in particular the widespread adverse effects of the EMU crisis on the UK economy, hitting exports, raising bank funding costs and creating a general mood of caution that encourages firms and households to delay spending. The governor reiterated (a point he has made before) that the EMU crisis will not end until its underlying causes - deep economic problems in periphery countries and widespread weakness in euro area banks – are resolved: "Until losses are recognised, and reflected in balance sheets, the current problems will drag on. An honest recognition of those losses would require a major recapitalisation of the European banking system."
Second, King made no mention of the inflation worries shared by some MPC members, moving straight from the weaker economic outlook to the case for extra stimulus – extra monetary stimulus plus measures to encourage bank lending. He stressed that both are needed.Second, King made no mention of the inflation worries shared by some MPC members, moving straight from the weaker economic outlook to the case for extra stimulus – extra monetary stimulus plus measures to encourage bank lending. He stressed that both are needed.
In our view, these measures may not immediately be enough to fully insulate the UK economy from the EMU crisis, as well as to overcome the domestic drags from high household debt and tight fiscal policy. But more can be done: QE and the "funding for lending" scheme can be expanded markedly further, while the BoE also can cut Bank Rate. Moreover, if the EMU crisis remains severe or intensifies, temporary fiscal stimulus via tax cuts or extra public investment is likely later this year to negate the existing heavy restraint planned for 2013 and 2014. The authorities have options for stimulus, and these are now being mobilised.In our view, these measures may not immediately be enough to fully insulate the UK economy from the EMU crisis, as well as to overcome the domestic drags from high household debt and tight fiscal policy. But more can be done: QE and the "funding for lending" scheme can be expanded markedly further, while the BoE also can cut Bank Rate. Moreover, if the EMU crisis remains severe or intensifies, temporary fiscal stimulus via tax cuts or extra public investment is likely later this year to negate the existing heavy restraint planned for 2013 and 2014. The authorities have options for stimulus, and these are now being mobilised.
8.45am: Manchester Business School's banking expert Ismail Erturk is less enamoured with the new "funding for lending" scheme - describing it as "aimless fire power".8.45am: Manchester Business School's banking expert Ismail Erturk is less enamoured with the new "funding for lending" scheme - describing it as "aimless fire power".
The chancellor claims that the fire power of £80bn will protect the UK economy from the effects of the euro crisis. What UK needs is not some macho talk on fire power of monetary policy. The Bank of England has been doing this since 2008 and there is no evidence that it is working. Instead we are creating a new zombie institution Bank of England with unpredictable risky consequences. What the UK needs is an intelligent comprehensive policy to reform banking and to allocate capital to the right industries that can generate growth and employment. Aimless fire power will not work.The chancellor claims that the fire power of £80bn will protect the UK economy from the effects of the euro crisis. What UK needs is not some macho talk on fire power of monetary policy. The Bank of England has been doing this since 2008 and there is no evidence that it is working. Instead we are creating a new zombie institution Bank of England with unpredictable risky consequences. What the UK needs is an intelligent comprehensive policy to reform banking and to allocate capital to the right industries that can generate growth and employment. Aimless fire power will not work.
8.35am: Alan Clarke at Scotia Bank also likes the Bank's new measures which he describes as "thinking outside the box". Will it work?8.35am: Alan Clarke at Scotia Bank also likes the Bank's new measures which he describes as "thinking outside the box". Will it work?
On the plus side, it is timely. This comes at a crucial time ahead of the weekend elections in Greece. The Bank has hinted that it has contingency plans in the event of disaster, but has now started to flex its muscles and show that it means business. The tweaking in the FPC mandate is welcome. Not only will that committee be charged with taking away the punchbowl just as the party is getting going, it will also be on hand to provide pitchers of red bull and vodka if the revellers are failing to embrace the party animal spirit. The UK has had much higher Libor rates than elsewhere and the early market reaction has been to reverse that.On the plus side, it is timely. This comes at a crucial time ahead of the weekend elections in Greece. The Bank has hinted that it has contingency plans in the event of disaster, but has now started to flex its muscles and show that it means business. The tweaking in the FPC mandate is welcome. Not only will that committee be charged with taking away the punchbowl just as the party is getting going, it will also be on hand to provide pitchers of red bull and vodka if the revellers are failing to embrace the party animal spirit. The UK has had much higher Libor rates than elsewhere and the early market reaction has been to reverse that.
However, he identified a number of potential weaknesses in the plan.However, he identified a number of potential weaknesses in the plan.
1.) Incentive structure: "sustaining or expanding" loans. More specifically, the Bank will provide funding to banks "at rates below current market rates and linked to the performance of banks in sustaining or expanding their lending to the non-financial sector…"
Past schemes have been conditional on banks increasing their loan books, but we have hardly seen a dramatic rebound in lending. We need to hope that the incentive structure is better designed in this scheme to put less emphasis on the "sustaining" and more on the "expanding" loans.		1.) Incentive structure: "sustaining or expanding" loans. More specifically, the Bank will provide funding to banks "at rates below current market rates and linked to the performance of banks in sustaining or expanding their lending to the non-financial sector…"
Past schemes have been conditional on banks increasing their loan books, but we have hardly seen a dramatic rebound in lending. We need to hope that the incentive structure is better designed in this scheme to put less emphasis on the "sustaining" and more on the "expanding" loans.
2.) Targeting the flow rather than the stock of loans. The scheme appears to want to encourage the provision of new loans at more competitive rates of interest rather than alleviate the burden on existing borrowers. While it is admirable to want to help first time buyers and new loans to businesses, this is a much smaller group than were the Bank to explicitly target reducing costs of existing loans. Targeting new loans:
a.) Relies on there being sufficient appetite for new loans. Demand may be held back by risk aversion given the sluggish outlook for growth and storms in Europe, lack of deposit for a new home etc.
b.) An implicit assumption that the boost from new loans will work its way through the system and help kick start hiring and investment and wider domestic demand further down the road.		2.) Targeting the flow rather than the stock of loans. The scheme appears to want to encourage the provision of new loans at more competitive rates of interest rather than alleviate the burden on existing borrowers. While it is admirable to want to help first time buyers and new loans to businesses, this is a much smaller group than were the Bank to explicitly target reducing costs of existing loans. Targeting new loans:
a.) Relies on there being sufficient appetite for new loans. Demand may be held back by risk aversion given the sluggish outlook for growth and storms in Europe, lack of deposit for a new home etc.
b.) An implicit assumption that the boost from new loans will work its way through the system and help kick start hiring and investment and wider domestic demand further down the road.
Our point is, it is a little indirect. Our preference has been to reduce the gap between the average mortgage rate paid by existing borrowers relative to Bank rate. To do so would immediately give a boost to household real disposable income growth, which would boost consumer spending which represents 2/3 of GDP by expenditure. It affects a much larger group of people and behaves like an old-fashioned interest rate cut. At the moment, the gap is far too wide and about to widen, with several banks announcing mortgage rate hikes.Our point is, it is a little indirect. Our preference has been to reduce the gap between the average mortgage rate paid by existing borrowers relative to Bank rate. To do so would immediately give a boost to household real disposable income growth, which would boost consumer spending which represents 2/3 of GDP by expenditure. It affects a much larger group of people and behaves like an old-fashioned interest rate cut. At the moment, the gap is far too wide and about to widen, with several banks announcing mortgage rate hikes.
He concludes:He concludes:
Our hope is that it doesn't repeat the Eurozone style announcement where initial euphoria is very quickly wiped out. In stark contrast to continental Europe, the UK government and central bank are acting in unison. Hence despite continued undertones of reluctance on Mervyn Kings' part, there must be a greater chance that this scheme succeeds where others have failed.Our hope is that it doesn't repeat the Eurozone style announcement where initial euphoria is very quickly wiped out. In stark contrast to continental Europe, the UK government and central bank are acting in unison. Hence despite continued undertones of reluctance on Mervyn Kings' part, there must be a greater chance that this scheme succeeds where others have failed.
8.21am: The immediate reaction from City economists to the Bank of England's emergency package is positive. Malcolm Barr at JPMorgan Chase says the measures are "unambiguously positive" for the outlook:8.21am: The immediate reaction from City economists to the Bank of England's emergency package is positive. Malcolm Barr at JPMorgan Chase says the measures are "unambiguously positive" for the outlook:
The credit easing part of the above is the most significant, and newspapers cite aides to Osborne as speaking of measures that could boost lending to the private sector by £80bn (5.2% of GDP). That gives some sense of the potential size of the scheme, by way of comparison the ECB's 3 year LTROs extended term lending worth near 10.7% of regional GDP. There is obviously significant detail still to be forthcoming.The credit easing part of the above is the most significant, and newspapers cite aides to Osborne as speaking of measures that could boost lending to the private sector by £80bn (5.2% of GDP). That gives some sense of the potential size of the scheme, by way of comparison the ECB's 3 year LTROs extended term lending worth near 10.7% of regional GDP. There is obviously significant detail still to be forthcoming.
Recent UK experience of attempting to set measurable targets for bank lending in return for forms of support for banks has not been a happy one. However, the initial scale of the scheme is significant, and it differs from the Osborne's SME credit easing scheme by appearing that it will be funded by reserve creation and involve loans to the banks rather than providing a guarantee on bank issued debt.Recent UK experience of attempting to set measurable targets for bank lending in return for forms of support for banks has not been a happy one. However, the initial scale of the scheme is significant, and it differs from the Osborne's SME credit easing scheme by appearing that it will be funded by reserve creation and involve loans to the banks rather than providing a guarantee on bank issued debt.
Having expressed our concerns that the marginal impact of QE was fading, we regard these steps as unambiguously positive for the outlook, even as we are disappointed (thought not surprised) that the Chancellor continues to show little flexibility on the issue of infrastructure spending initially funded directly and undertaken by the state.Having expressed our concerns that the marginal impact of QE was fading, we regard these steps as unambiguously positive for the outlook, even as we are disappointed (thought not surprised) that the Chancellor continues to show little flexibility on the issue of infrastructure spending initially funded directly and undertaken by the state.
8.17am: European stock markets have opened higher. The FTSE 100 index in London has climbed 35 points, or 0.65%, to 5502, while Germany's Dax is up 32 points, or 0.5%, to 6171 and France's CAC has gained 16 points, or 0.5%, to 3048. Spain's Ibex added 0.7% and Italy's FTSE MiB was up 0.6%.8.17am: European stock markets have opened higher. The FTSE 100 index in London has climbed 35 points, or 0.65%, to 5502, while Germany's Dax is up 32 points, or 0.5%, to 6171 and France's CAC has gained 16 points, or 0.5%, to 3048. Spain's Ibex added 0.7% and Italy's FTSE MiB was up 0.6%.
8.12am: The Bank of England hints that the new ECTR auctions - which are similar to the ECB's LTROs - are aimed to protect British banks from the storm raging on the continent.8.12am: The Bank of England hints that the new ECTR auctions - which are similar to the ECB's LTROs - are aimed to protect British banks from the storm raging on the continent.
The ECTR Facility enables the Bank to ensure that the banking sector has sufficient access to sterling liquidity to mitigate risks arising from unexpected shocks.The ECTR Facility enables the Bank to ensure that the banking sector has sufficient access to sterling liquidity to mitigate risks arising from unexpected shocks.
8.05am: The Bank of England has announced that the first Extended Collateral Term Repo Facility auction will be next Wednesday and it will hold at least one such auction a month until further notice. The auctions are part of a new emergency package of measures to get more credit flowing through the UK economy as the eurozone crisis deepens.8.05am: The Bank of England has announced that the first Extended Collateral Term Repo Facility auction will be next Wednesday and it will hold at least one such auction a month until further notice. The auctions are part of a new emergency package of measures to get more credit flowing through the UK economy as the eurozone crisis deepens.
At each auction, it will offer at least £5bn of cheap credit (six-month loans against collateral) to banks. The size will be announced on the day before the auction. The Bank will lend the money at a minium of Bank rate, which is currently 0.5%, plus an additional 25 basis points.At each auction, it will offer at least £5bn of cheap credit (six-month loans against collateral) to banks. The size will be announced on the day before the auction. The Bank will lend the money at a minium of Bank rate, which is currently 0.5%, plus an additional 25 basis points.
7.30am: Good morning and welcome back to our rolling coverage of the eurozone debt crisis and world economy. The weekend elections in Greece will continue to weigh on markets today, while Spain's woes continue to worse, with its borrowing costs rising through 7% on the 10-year measure yesterday. They were at 6.9% this morning.7.30am: Good morning and welcome back to our rolling coverage of the eurozone debt crisis and world economy. The weekend elections in Greece will continue to weigh on markets today, while Spain's woes continue to worse, with its borrowing costs rising through 7% on the 10-year measure yesterday. They were at 6.9% this morning.
The Mansion House speeches in the City are usually a fairly boring affair. Not so last night. Bank of England governor Sir Mervyn King and chancellor George Osborne unveiled two new initiatives to help banks and boost business lending. The emergency measures are an indication of how worried they are about the economic situation. Osborne warned that the "debt storm" on the continent had left the UK and the rest of Europe facing their worst peacetime economic crisis.The Mansion House speeches in the City are usually a fairly boring affair. Not so last night. Bank of England governor Sir Mervyn King and chancellor George Osborne unveiled two new initiatives to help banks and boost business lending. The emergency measures are an indication of how worried they are about the economic situation. Osborne warned that the "debt storm" on the continent had left the UK and the rest of Europe facing their worst peacetime economic crisis.
The Bank of England will start pumping up to £100bn of cheap credit into the UK economy - at least £5bn a month - within the next few days. This is on top of its £325bn quantitative easing (QE) programme. The schedule for the Extended Collateral Term Repo Facility auctions - which are reminiscent of the ECB's LTROs - will be set out at 8am. And under a new "funding for lending" scheme, worth up to £80bn, the Bank will provide cheap loans to banks for several years, at below market rates, in exchange for the banks lending the money to households and small and medium-sized businesses.The Bank of England will start pumping up to £100bn of cheap credit into the UK economy - at least £5bn a month - within the next few days. This is on top of its £325bn quantitative easing (QE) programme. The schedule for the Extended Collateral Term Repo Facility auctions - which are reminiscent of the ECB's LTROs - will be set out at 8am. And under a new "funding for lending" scheme, worth up to £80bn, the Bank will provide cheap loans to banks for several years, at below market rates, in exchange for the banks lending the money to households and small and medium-sized businesses.
King also dropped a heavy hint that more QE could be on its way: "The case for further monetary easing is growing." He rejected the suggestion, from monetary policy committee member Adam Posen earlier this week, that the Bank should move away from gilt purchases towards private sector assets. His argument is that the Bank does not have a mandate to put taxpayers' money at risk by making outright purchases of risky assets.King also dropped a heavy hint that more QE could be on its way: "The case for further monetary easing is growing." He rejected the suggestion, from monetary policy committee member Adam Posen earlier this week, that the Bank should move away from gilt purchases towards private sector assets. His argument is that the Bank does not have a mandate to put taxpayers' money at risk by making outright purchases of risky assets.
Simon Hayes at Barclays Capital said:Simon Hayes at Barclays Capital said:
It is clear from governor King's speech that he has become more gravely concerned about the economic outlook, even over just the past few weeks. Heightened uncertainty about the euro area is increasingly infecting the UK outlook through tighter credit conditions and low confidence among businesses and households. Not only has this prompted the new announcements on banking sector support, but it also implies a much increased likelihood that the MPC will sanction more QE.It is clear from governor King's speech that he has become more gravely concerned about the economic outlook, even over just the past few weeks. Heightened uncertainty about the euro area is increasingly infecting the UK outlook through tighter credit conditions and low confidence among businesses and households. Not only has this prompted the new announcements on banking sector support, but it also implies a much increased likelihood that the MPC will sanction more QE.