Georg Witschel, Germany's ambassador to Ottawa, earlier told the Globe and Mail newspaper that countries such as Canada should show more solidarity with Europe.
18.20 Back to the matter at hand - Spain.
The previously tight-lipped Vitor Constancio (see 17.50) has now said that he expects Spain to request financial aid soon. He told Portuguese radio:
It is expected that Spain will formulate a request for aid exclusively for banks recapitalisation ... there has to be an expression of will to have such a programme for Spanish banks, and one may hope it happens rather swiftly.
18.02 Another, from Peter Spiegel:
17.57 We can expect a lot more jokes like this over the next few weeks. Here's one of the first, courtesy of the FT's Alan Beattie after Greece went down to ten men:
17.53 It's happy European families at Euro 2012:
17.50 Vitor Constancio, vice president of the European Central Bank, has said that the difficulties facing Spain?s banks have to be overcome and solved quickly, but refused to comment on when, or if, the country would need an aid package. He said:
The Spanish government may still decide it is able to raise the necessary funds for that recapitalisation in the market [...] There still is no formal decision that has been taken and announced.
16.38 Markets have closed for the day and week. Rumours early on that Spain would seek a bank bailout over the weekend became increasingly firm during the session. It now looks like a case of "when, not if" - although we may not get concrete details until two independent reports on the health of the banking sector are published.
Angus Campbell, head of market analysis at Capital Spreads, said:
Day by day the figure of how much Spain really needs to prop up its banks gradually increases and as the hole becomes deeper the markets get more nervous about an imminent bailout for the country. This weekend European finance ministers will have discussions about the crisis and these may result in that bailout becoming reality.
16.04 An interesting conference from President Obama, and one which the German Chancellor will be torn on if she's watching from Berlin. First he mentioned the need for "more integration" in Europe, which will please Angela Merkel, but then he warns on the dangers of implementing austerity too quickly, which "makes it harder to pay off debts".
The US can "prod, advise and suggest" he said, but ultimately the decision on how to solve the crisis lies with Europe's leaders.
15.54 And the President warns that if the eurozone slips back into a recession, then the US could see its recovery slow:
if Europe goes into a recession that means we're selling fewer goods, fewer services, and that is going to have some impact on the pace of our recovery. Ultimately it's a decision they have to make, how they move forward into more integration. The most important thing we can do it make sure we continue to have a strong, robust economy.
15.51 More on Europe from President Obama...
The situation in Europe is not simply a debt crisis, you've got some countries, like Greece, that genuinely have spent more than they're bringing in. There are other countries that were actually running a surplus... but had weaknesses similar to what happened here, in respect to their housing markets.
The markets getting nervous have started making it much more expensive to borrow and that ends up getting them on a downward spiral.
We've consulted with them at a head of government and head of state level. The challenges they face are solvable. Right now their focus has to be on strengthening their overall banking system, making a series of actions that gives people confidence the banking system is solid.
15.44 US President Obama is giving a press conference at the White House. He warns Europe needs to stabilise the financial system, inject capital into weak banks and lay out a plan for stronger budgets. (If reports on Spain are correct, Europe will begin to sort out his second point this weekend.)
He also says that Greeks need to realise - ahead of next week's election - that if they leave the eurozone, their "hardships will be worse".
15.34 More from Bruno Waterfield, who says it's now a case of "when, not if" Spain asks for a bank bailout:
15.18 Our man in Brussels, Bruno Waterfield, brings us an update: there will be no public confirmation of the eurozone call until Spain gives the signal, possibly tonight, after the US markets close.
The Euro Working Group has been placed on standby over the weekend to work on bailout terms after the expected telephone conference of eurozone finance ministers tomorrow.
EU officials are also frustrated at the array of different Spanish economy, Treasury and budget ministers making contradicting statements. One source said:
It's not a question of if Spain needs support, but what the terms of the conditionality of the aid will be.
15.06 Spain's deputy PM Soraya S?enz de Santamar?a , who earlier (13.23) said no ministerial meeting was planned, now says the government needs an estimate of the recapitalisation needs of its troubled banks:
It's important to respect the proceedings because it's important to know the ground... and the ground means the figures, at least a preliminary reading of what are the needs of the Spanish financial system.
14.56 US markets have opened for the day, joining a global equities sell-off after Fed chairman Ben Bernanke disappointed investors hoping for more stimulus.
14.31 The Financial Times reports that two conference calls will take place on Saturday; one between representatives of European treasuries and one with the eurozone finance ministers. German weekly Der Spiegel says Mariano Rajoy is expected to reveal that his banks need funding, but not agree on the timing or scale of the bailout needed - not until he's seen the results of the independent reports on the health of the sector.
14.23 The markets are still down in Europe, apart from Spain, where reports that the government will ask the EU for a bailout to recapitalise its banking sector seem to have boosted sentiment.
14.07 Spain's heading towards a unique sort of bailout, one which would inject cash directly into its ailing banking sector and leave the rest of the country free from the strict, painful and deeply unpopular austerity measures Greece endured in return for its own rescue. But this unique treatment won't work, argues Nicholas Spiro:
Firstly, the EFSF guidelines on direct recapitalisation of banks make it clear that in order to be eligible for such assistance, candidates must have a "sound fiscal policy record". For a country that is currently nursing a budget deficit of 9pc of GDP and has significant problems enforcing fiscal discipline in its regions, it strains credulity to claim that Spain's woes are solely in the banking sector.
Eurozone countries that were forced to sign up to the standard "macroeconomic adjustment programmes" with their stringent conditions attached would almost certainly be incensed at the special treatment Spain would be receiving. While Greece is an outlier, Ireland may take particular umbrage even though its bank-focused problems were far more severe than Spain's at the time that it was bailed out. Flexibility in bail-out programmes could set a dangerous precedent for the eurozone.
Austerity measures imposed on Greece led to weeks of rioting in Athens.
13.44 The US trade deficit narrowed 4.9pc in April to $50.1bn, as imports and exports fall from the record highs they reached in March. Imports slipped 1.7pc, while exports fell 0.8pc.
13.31 Nicholas Spiro, managing director of Spiro Sovereign Strategy, says markets need to be careful to keep an eye on France, even as the other watches Spain unravel:
Markets have been so transfixed by Spain's crisis over the past few weeks that they have taken their eyes off the first round of France's parliamentary election on Sunday. Investors are relatively insouciant about what, as little as a month ago, was considered a crucial political event in the eurozone.
France has been given a lift by the election of Francois Hollande as President and Greece's inconclusive election result. The former is already paying political dividends for Mr Hollande's Socialist party while the latter has helped turn France into a relative safe haven in the bond markets.
Mr Hollande was not expecting a honeymoon, but he is enjoying the closest thing there is to one at a time when France's economy is flat on its back and the eurozone is at risk of falling apart. However we remain wary of French debt. French banks' exposure to the eurozone's periphery, in particular Italian private and public debt, remains a key source of risk as the eurozone crisis intensifies.
13.23 Spain's deputy PM Soraya S?enz de Santamar?a says no ministerial-level meeting is planned, nor any formal European meeting on the nation's banks, but concedes that he doesn't know what every minister has in their diary. No decision has yet been made, he claims.
13.01 Angela Merkel has waded in to the Spanish situation, but said only that they won't force it to take a bailout. She said Germany won't pressure any country to apply for eurozone aid, but that rescue measures were in place if needed.
But Channel 4's Faisal Islam has a slightly different take:
12.51 Spain has said that the first independent report into the health of its banks - which it said it would wait for before deciding whether to ask for EU bailout money - is due out on June 21. The second is due July 31. Meanwhile, reports continue to suggest that the country will go back on its previous statement and ask the EU for cash to recapitalise its banks tomorrow.
12.09 The situation in Spain is taking centre stage in the eurozone drama, so we've pulled together a timeline of the crisis that's hit the country so hard. In 2008, a long period of expansion in Spain came to an end and a lengthy property bubble burst. Today, the banks have 800,000 unsold properties on their books.
11.53 The fake Angela Merkel has a nagging feeling that Spain's PM Mariano Rajoy has a question to ask...
11.37 While we're on the topic of bank bailouts: the chairman of Cyprus Popular Bank, the country's second-largest lender, says it will "realistically have to seek" an EU bailout to recapitalise. Michalis Sarris, a former finance minister, said that there's no longer stigma to it anymore. That will cheer Spain, which, Bruno Waterfield says, is looking increasingly likely to announce a plea for EU cash tomorrow:
11.21 German government spokesman Steffen Seibert has declined to comment on whether Spain would request a bank bailout this weekend, but said instruments exist to provide help if needed.
It is the decision of the Spanish government alone whether it seeks financial help... The eurozone instruments are in place.
10.48 The ECB could cut its overnight deposit rate to 0pc, says policymaker Ewald Nowotny. He also said the central bank had no plans to restart hoovering-up sovereign bonds.
The ECB's current policy of flooding the banking system with hundreds of billions of euros in cheap loans means market rates now gravitate towards its overnight deposit rate rather than its main interest rate as they do in normal times. Cutting the deposit rate to zero would take rates as low as they could go, something the ECB was previously reluctant to do.
As an example of how huge an effect a change in the rate would be, last night the ECB looked after ?757bn in deposits.
10.34 Faisal Islam suggests that the IMF report due out on Monday isn't the only good reason for Spain to time a bailout plea for this weekend.
10.27 A young woman who used to work in real estate has just been interviewed by BBC News on the state of the Spanish housing market - the cause of the country's banking problems. She says people are trying to sell homes for half what they cost them 8 years before. Ouch.
10.23 After reporting that Spain was preparing to seek a bank bailout from the EU this weekend, Reuters is now quoting a government spokesperson as saying she was unaware of any pending announcement. Has the eurozone rumour mill got ahead of itself, or is the government talking down the rumour until markets have closed? We'll bring you more on this as it comes in.
10.15 UK producer inflation data is out, and it slowed to its lowest rate for more than two years in May. Analysts had expected a 0.1pc rise, but instead we've got a 0.2pc drop. Amit Kara of UBS says:
The producer price numbers are clearly below market expectations, but they only really relate to goods prices in the overall inflation index and as such I don't think that will have a material impact on the policy decision.
More interesting is the Bank of England inflation expectation survey which has climbed. I think given the persistence in inflation this will be of some concern to the MPC. The threshold for another round of QE is a little bit higher as a result.
10.07 Those of you who are fans of a good eurozone portmanteau (Grexit, Merkozy, etc) will enjoy this Twitter hashtag that's broken out since rumours emerged that Spain would be making a plea for cash from the EU this weekend.
10.05 This tweet from Fabrizio Goria sums up the Spanish situation pretty well: a downgrade from Fitch, rising bond yields, a struggling banking sector, rumours of a plea for cash from the EU this weekend.
09.57 Simon Denham, chief executive of Capital Spreads, points out that central bankers around the world have failed to give markets much cause for optimism this week. And there's precious little economic data due out today, the last trading session before the weekend, to pin hopes on:
The ?will-they-won?t-they pump more money? is over for now as all major central bankers this week have made it clear this week that they are not the answer to all our economic problems. The inaction from the ECB, BOE or the Federal Reserve chairman Ben Bernanke has given markets a little time to pause for thought this morning.
09.38 The IMF's due to publish its report on the health of Spanish banks on Monday, and is expected to say it will take a cash injection of at least ?40bn to recapitalise the lenders (forget for a moment that Fitch says ?100bn, Roubini Global Economics predicts a cost of up to ?250bn, JP Morgan says ?350bn and RBS believes it could hit ?450bn).
Spain itself says propping-up Bankia alone will cost ?23.5bn. It also says it's determined to wait 10-15 days for the release of independent reports on the state of its lenders before taking any action. But rumours this morning suggest it will be forced to make a plea for help sometime this weekend. It makes some kind of sense: with that kind of bad publicity on the way, it could be their only option.
09.23 Markets in Europe have slid further during the first hour of trading. Disappointment in a lack of action from Ben Bernanke last night and increased concerns over the escalating debt crisis in the eurozone, as well as Spain's struggling bank sector, have further dampened the mood.
Ilya Spivak, currency strategist at DailyFX, comments:
European shares are following Asian bourses lower in early trade, with S&P 500 stock index futures pointing to more of the same as Wall Street comes online. Traders are responding to ambiguity about future stimulus efforts in Federal Reserve Chairman Ben Bernanke's testimony to the US Congress. Investors were looking for concrete guidance on a QE3 program in light of the latest stretch of disappointing US economic data, hoping additional asset purchases might help the nascent US recovery offset headwinds to global growth from a recession in the Eurozone and a slowdown in China.
Besides disappointment on the Fed stimulus front, a pickup in Eurozone sovereign concerns compounds downward pressure on risky assets after Fitch slashed Spain's credit rating. Spreads between periphery 10-year bond yields and benchmark German equivalents are broadly wider and Eurozone sovereign CDS rates are on the upswing.
09.11 Reuters reports that it's been told by two anonymous EU sources and one from Germany that Spain is expected to make a request for aid during the weekend for its struggling banking sector.
"The announcement is expected for Saturday afternoon," one of the EU officials told Reuters.
08.43 Greece's top tax investigator says that IMF head Christine Lagarde was right to urge Greeks to pay their bills. Nikos Lekkas told German daily Die Welt:
I agree wholeheartedly with Ms. Lagarde. Tax evasion in Greece amounts to 12-15pc of gross domestic product. That's ?40bn-?45bn each year. If we could raise even just half of that, Greece's problems would be solved. Our politicians have begun to understand this.
08.32 Peter Oborne warns that those financiers who advocated the creation of the eurozone 15 years ago may be unwilling to admit failure, even though remaining in the single currency is no longer a rational choice for many countries:
08.05 European markets have opened down on Spain's downgrade.
07.35 The Bank of France has cut its Q2 growth forecast to -0.1pc. The central bank says business sentiment fell to 93 in May from 95. The trade balance fell to -?5.8bn from -?5.72. Analysts had expected a much better -?5.5bn.
07.31 Spanish bond yields have jumped 17 basis points this morning to hit 6.2pc, remaining over the 6pc 'danger level'. It comes after Fitch downgraded the country by three notches last night. Italy's yields up 9bps to 5.7pc.
07.10 German exports fell 1.7pc in April (month-on-month). Analysts had predicted a fall of 0.7pc after a 0.8pc rise in March. Imports fell 4.8pc, massively missing expectations of a 0.1pc fall after a 0.9pc rise in March. The trade balance falls to ?14.4bn from ?17.4bn.
06.54 Asian markets have been hit this morning, led by Japan.
Mainland Chinese shares moved higher by midday.
06.50 Meanwhile, David Cameron has promised to 'protect' Britain from German plans for a eurozone superstate with common banking and political systems. Rowena Mason and James Kirkup report:
Underlining the sceptical message, George Osborne hinted at a referendum on Europe following the euro crisis, saying any ?reshaped? relationship with the EU might have to be put to British voters.
06.45 However, the ?100bn cited by Fitch for the cost of bailing out Spain's banks looks like a conservative estimate when you compare it with some. Ambrose Evans-Pritchard highlights that some economists have begun to doubt whether the EU bail-out machinery can raise such large sums at all:
Megan Greene from Roubini Global Economics says Spain's banks will need up to ?250bn, a claim that no longer looks extreme. New troubles are emerging daily. The Bank of Spain said on Thursday that Catalunya Caixa and Novagalicia will need a total of ?9bn in new state funds.
JP Morgan is expecting the final package for Spain to rise above ?350bn, while RBS says the rescue will "morph" into a full-blown rescue of ?370bn to ?450bn over time - by far the largest in world history.
"Where is the money going to come from?" said Simon Derrick from BNY Mellon. "Half-measures are not going to work at this stage and it is not clear that the funding is available."
06.38 The downgrade puts Spain in the same league as Bahrain and Kazakhstan, and just one notch above Iceland, which is still emerging from its own crisis.
06.32 Fitch downgraded Spain by three notches last night, citing a serious mishandling of the debt crisis by European leaders. Louise Armitstead reports:
Spain?s credit rating was cut to BBB from A leaving the eurozone?s fourth biggest economy languishing just above junk status.
Fitch said the cost of bailing out its banks is likely to cost around ?60bn (?48.6bn) but could rise to as much as ?100bn, more than three times higher than the ?30bn in its last ?baseline estimate?.
Fitch hiked up its estimates of government debt levels from 82pc of GDP by 2013 made at the beginning of this year to 95pc by 2015. The rating agency said that it no longer expected Spain?s economy to return to growth next year but remain in recession for 2012 and 2013.
06.30 Good morning and welcome back to our live coverage of the European debt crisis.
Debt crisis live: archive
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