As the Eurocrats toy with “Grexit”, Spain is trying to plug holes in regional budgets

If the World goes into a nose dive there will still be top dog countries or safer heavens. The time to worry is when people start to starve then civil war breaks out. AS long as they can keep bellies full then civil unrest will be held at bay.

Back in the 1970s, the eurozone economies, then among the most dynamic on earth, generated 20pc of global growth. Over the past decade, this growth share has fallen to 5pc. Yet the single currency area still accounts for more than a fifth of the global economy. More fundamentally, the region’s banking sector is so distressed, and many of its governments so close to insolvency, that “eurogeddon” could spark a worldwide shockwave every bit as damaging as Lehman. And this time, of course, there is far less scope for fiscal and monetary bail-outs – not only in Europe, but in the US and elsewhere, too. Of course, the UK, already in recession and reliant on the eurozone to buy more than half its exports, is among the most seriously exposed. In May, Britain’s manufacturing PMI index nosedive to 45.9, the weakest reading since May 2009, down from 50.2 the month before. This marked the second biggest one-month drop in 20 years. Global markets are clearly skittish. The only thing that has stopped asset prices falling further, perhaps, is the belief that escalating market turmoil could push central banks into action – not just the ECB, but the Bank of England and Federal Reserve, too. That’s why gold prices are firming up once again. It’s also why the dollar index, typically inversely correlated with investor risk appetite, has lately shown signs of reversal.... - Well, the week past, brought worrying signs, though, that while the eurozone’s woes are not easing, ongoing concerns about monetary union are now having an impact on alternative growth centers, too, imposing real damage on commercial activity in other parts of the globe.....There is no talk of firewalls, or of simply letting Spain go, or of the European banking system being re-capitalised to compensate for the losses that it would suffer. Nope. This is it. The cancer has now spread to the vital organs of the EU. Spain is not a peripheral Mediterranean country. It is not an insignificant player in the political project. It is not a marginal going-along-for-the-ride-and-the-free-money passenger on the euro train. Not only is its economy so large as to be indispensable, but its ties with Italy mean that the Italian economy (which is the third largest in the EU) would be fatally compromised by its fall. “Itexit” is almost unpronounceable, so perhaps it’s fortunate that it will never be required: after Spexit, there would be nothing left to exit from.

"There are none more hopelessly enslaved, than those that believe they are free."

I wonder if Van Rompuy would give me a well paid position in the "EU government".... We see Greeks are talking of a local currency, I said over a year ago this was an option, not just for Greece but us all, a local currency that cant be traded outside the country would keep some form of money circulating and provide the basics, it would also allow the Greeks to keep the bulk of their savings in euros if governments allowed the local currency to pay taxes then it will take off on its own, it will mean that local currencies will find their own level against the main currency, put as you have the option to hold money in a main currency account that to will be self limiting, now i suggested this ages ago as a way to keep people in work and in their homes and i said that it would come sooner or later because people always have the need to trade so always find a token for that....one could almost get rid of welfare and pensions cost if you paid them in a local currency....We had to watch Barroso, and Rumpoy , "Twins of Evil" talking about the Greek election, how Greece must be allowed "Democracy" said Barroso. Democracy, what Democracy?Democracy When the Brussels parliament Says so, is Not Democracy! The Greek's were denied an election a few months ago, so another Goldman Sacks puppet could be Un-Democratically installed! It's a Takeover! The poor people in Greece, and Spain, Italy, and Britain are next. Dictator's don't know where their boundaries end. They have none. They want It ALL.The slavery laws are in place. People are being enslaved by Debt. "There are none more hopelessly enslaved, than those that believe they are free." Wellll...as for me, I've got a great idea which will be a "courageous leap of political imagination" ... An EU VAT on top of all the outrageous VAT's already burdening the citizens of Europe's individual nation states. Of course start it off at a mere 5% or so....and then when the lemmings simmer down and forget about it, you can jack it up to 15 or 20% ...

There is no certainty but there is cautious optimism

Hopes are rising that the European Union will agree a fresh €130bn (£108bn) bailout on Monday to save Greece from defaulting on its debts after politicians in Athens said they were close to a deal with their single currency partners. Amid attempts by Brussels to defuse the tension that has been building between Greece and Germany over the past week, it appeared that the austerity stricken southern European country had found the additional budget cuts being demanded by the rest of the eurozone. "We are almost there," one source said. European markets were closed when news emerged that weeks of increasingly bitter wrangling might at last be coming to an end, but shares on Wall Street rallied strongly after Antonis Samaras, leader of Greece's conservative New Democrats and the favorite to win the forthcoming election, said : "There is no certainty but there is cautious optimism." Greece's economy collapsed in the final three months of 2011, with output 7% lower than in the final quarter of 2010 and there are fears that the new cuts will intensify the recession and make it harder for the country to reduce its crippling debt burden. Monday's deal will involve the new €130bn bailout and an agreement that Greece's private sector creditors take losses of about 70% on their investments, but some analysts believe that even this will not be enough to make the debts sustainable. The European Central Bank, it emerged today, will not be required to take losses on its €50bn holdings of Greek government debt. The second EU bailout plan, totalling €130 billion, has been nonetheless suspended. The Eurozone Finance Ministers, in fact, doubt that the government of Prime Minister Lukas Papademos is up to the task of applying the announced austerity measures – not without reason. The cuts already enacted do not work because they only make things worse. In addition, the Greeks are putting up a stiff resistance to the programme of pauperization and decline of their country. Is this the prospect for a united Europe? Transforming the land in which Western culture and democracy were born into a protectorate of Brussels – with no hope for improvement? Is this a continent ever more deeply divided between the rich North and the South with its misery in which people wonder where their daily bread will come from? Meanwhile, in Germany, the ruling coalition is seriously thinking about cutting taxes. Yet, one cannot be indifferent to what is happening on the rest of the continent. And not only because it heightens the risk of political radicalism and the return of nationalism, as will be evident in the upcoming Greek elections..... We should also be concerned because this development, fraught with consequences and clearly promoted by Berlin, threatens our own model for success. The German economy prospers only because their firms do business to the detriment of weaker countries.

Is The Marshall Plan still active? ...or what --- Mrs Clinton's comments, as Ms Merkel, the German Chancellor, ended a three-day visit to China in the southern city of Guangzhou, where she tried to reassure the world's second largest economy about the strength of the euro.Mrs Clinton, the US Secretary of State, said she was confident that Europe has "the will and the means" to cut its debt and restore growth, as she sought to reassure European nations that the Obama administration's avowed "pivot" toward Asia will not dilute its commitment to Europe. "I have heard all the talk about where Europe fits into America's global outlook. And I have heard the some of the doubts expressed. But the reality couldn't be clearer: Europe is, and remains, America's partner of first resort," she told the Munich Security Conference. "We remain confident that Europe has the will and the means not only to cut your debt and build the necessary firewalls but also to create growth, and to restore liquidity and market confidence." In an apparent attack on China, she added: "Too often, American and European companies face unfair practices that tilt the playing field against us - favoritism for state-owned enterprises, barriers to trade emerging behind borders, restrictions on investment, rampant theft of intellectual property."

Other news : Well over 100 people have died in Eastern Europe due to a winter cold snap that has held the region in its icy grip for nearly a week. From Ukraine to Italy, snow and temperatures as low as minus 33 degrees Celsius (minus 27 degrees Fahrenheit) have clogged road and air traffic, caused power outages, closed schools, trapped mountain residents and claimed the lives of those caught outside, mainly the homeless. Some 101 people have died in Ukraine alone, with 38 new deaths reported overnight, the Emergencies Ministry said on Friday. Temperatures there have dipped to below minus 30 degrees Celsius, making it the country's coldest winter in six years. While most of the dead have been homeless people found on the streets, hundreds of others have also been treated for frostbite and other problems caused by the cold. Authorities have set up some 3,000 heated tents to protect the homeless. Most schools in the country are also reportedly closed. Deaths have also been reported in Romania, the Czech Republic and Poland, where firefighters reported on Thursday that 11 people had died from carbon monoxide that came from charcoal heaters they were using to warm their homes. Amid reports of record low temperatures across the Continent, many countries reported that natural gas deliveries from Russia had been reduced. Ukraine denied Russian accusations that it had used more than its share of the fuel, but the tone was reminiscent of gas disputes between the two countries in years past. So far, European officials have reportedly been able to compensate for the gas shortages with domestic supplies. Western Europe has also seen freezing temperatures and a handful of related deaths. Italian officials on Thursday reported a homeless man had died of exposure in Milan. In Germany, a homeless man in the eastern state of Saxony-Anhalt was found dead on Thursday, after an elderly woman in the neighboring state of Lower Saxony had succumbed on Wednesday. Warmer temperatures are unlikely in the coming days, though, the German Weather Service reported.

Thruth ???

Italy sold €9bn of six-month bills at an average rate of 3.25pc, down from euro-era highs of 6.50pc at a similar auction last month. Demand also rose, with 1.67 bidders for each bond, compared with 1.47 in November. Separately, Italy sold €1.7bn of two-year bonds at an average rate of 4.85pc, down from 7.8pc a month ago. The bid-to-cover ratio rose to 2.24, compared with 1.59 last month. The successful auctions saw yields on benchmark 10-year Italian bonds fall 22 basis points to 6.67pc. Another closely-watched sale of three, six and ten year bonds will be held on Thursday. The auction was the first since the European Central Bank (ECB) offered €489bn in cheap three year loans to eurozone banks in an attempt to prevent a full-scale credit crunch. Another day of light trading saw stock markets react positively to the sale. The FTSE Mib in Italy jumped 1.3pc to 15,113.25, while the FTSE 100 in London edged up 0.66pc at 5,548.92 on the first day of trading since the Christmas holiday.

Let us all fervently pray for a failure to find a solution so that we can have the end of the European Union.

Where are they going to find over 2 trillion when they couldn't manage it before?... The EFSF cant manage to raise money.. The Germans are against Eurobonds and Printing because it is unconstitutional..... The IMF is not a tool to be used like this and the shareholders will not allow it....Tell us where are they are going to get the money from !!!...Torn between the need for stability and the desire for solidarity, EU leaders have to find an immediate fix for the broken euro zone and embrace a longer-term plan for fiscal union by Friday night. Portuguese premier Pedro Passos Coelho set the tone for the week in an interview on Sunday: "We have to find a response, a much stronger response than so far. If we don't, clearly that could represent the end of the European Union." Senior opposition politicians put severe pressure on French president Nicolas Sarkozy and German chancellor Angela Merkel ahead of their pre-summit talks in Paris on Monday to approve a "grand bargain" or, at least, workable plan that will gain the support of partners such as the US. Timothy Geithner, Treasury secretary, will be in Europe for talks all week. Sarkozy's main opponent in next spring's presidential election, socialist leader François Hollande, accused him of caving into German demands for a new EU treaty on budgets that was bound to fail, exacerbating French weakness in an unbalanced relationship with Berlin and ignoring the need for immediate solutions. "We cannot wait," he told Le Journal du Dimanche, setting out his stall for a "pact of governance and growth," greater scope for intervention by the European Central Bank, turning the bailout fund, the EFSF, into a bank "to help out the most vulnerable countries" and huge investment in infrastructure. At the social democrats' (SPD) congress in Hamburg, ex-chancellor Helmut Schmidt warned Merkel against a "show of strength" or leadership role for Germany that would simply isolate it. CONCLUSION : The Euro zone crisis is demonstrating what any sub A level economics student should have said when the Euro was launched - you can not have monetary union without central fiscal policy control. So events have proved. Hence the choice is clear. Either the Euro zone breaks up or Europe is ruled by Germany.

CRISIS - It can resolved far more quickly. Britain out of the "EU", which will then collapse. Job done.

Speaking a week before a European Union summit seen as make-or-break for the single currency area, Ms Merkel ruled out issuing common eurozone bonds as a crisis solution, saying that would breach the German constitution. Instead, she called for a mixture of greater European powers to control national budgets, to be enshrined in treaty changes and use of the euro zone rescue fund to stabilize markets and to counter the debt crisis. She called for a long-term approach to tighter fiscal integration in the euro zone, with tougher budget discipline, and expressed her hope the European Banking Authority would act soon to overcapitalize banks. World stocks and European bonds continued to recover on hopes that euro zone leaders may be moving closer to a comprehensive solution to the debt crisis. While the Chancellor has constantly reiterated that she is pushing for incremental treaty changes and her loyalty to other European countries, she again refuted the suggestion that Germany is pushing to dominate the 27-member block. Merkel has consistently tied the future of the European Union to the stability of the common currency zone and vowed that her country was on the right path. Merkel hasn't got years, this crisis can not stumble on for ever and day. For a start, there isn't enough money around to last that long. This is like telling a bloke he has had his leg bitten off by a shark to go home and wait his turn in the queue- he will be dead before his turn comes around. If Merkel wants to save the euro then she has bizarre ideas about how to do it. They aren't going to work.

Italy again had to pay investors yields averaging above 7% at its government bond auctions Tuesday, as the euro zone's third-largest economy continues to borrow at costs that forced Greece, Portugal and Ireland to seek external bailouts. The auction of up to €8 billion in bonds over a range of maturities saw Italy paying a yield of 7.89% on three-year bonds and 7.56% on 10-year paper. Both marked new euro-era highs. That Italy had to offer higher yields on shorter-dated bonds at Tuesday's sale underscores how investors want to be compensated for the risk attached to the country's near-term fiscal outlook. Demand at the auction totaled €10.9 billion, enough to safely cover the amount on offer. But the margin was still small; the bid-to-cover ratio on the 10-year sale, for example, totaled 1.34, up marginally from a slim 1.27 last month. Yields in the secondary market initially fell on the results, but the benchmark 10-year yield remained sharply higher on the day. "Italy does not have the ability to push down its funding costs to sustainable levels," said Jeffrey Sica, president and chief investment officer of SICA Wealth Management, which has more than $1 billion in client assets, real estate and private-equity holdings.

One of Angela Merkel's key allies has dampened hopes that Berlin may cave in – insisting that Germany is not about to unleash the Big Bazooka that other European leaders (notably David Cameron) have called for. Michael Meister, finance spokesman for Merkel's Christian Democratic party, said this morning that Germany is sticking to its current plan for the eurozone crisis. Meister told reporters that: We don't have any new bazooka to pull out of the bag. That means Germany is sticking to its position that austerity and budget cutbacks are the short-term solution to the crisis (along with bank overcapitalization and a haircut on Greek debt). In the long-term, it wants changes to the EU Treaty to bind eurozone members closer together. The Big Bazooka (das große Geschütz?) option would be for the European Central Bank to launch a quantitative easing programme to mop up large quantities of sovereign debt, followed by eurobonds – allowing weaker nations to borrow with the security of Germany's credit rating behind them. Both options, though, remain deeply unpopular in the eurozone's largest economy.

Could anyone give or sell us a "Survival kit?"

France is being particularly watched on its commitments to cut high deficits as losing its triple-A rating would undermine the euro zone's bailout facility, the European Financial Stability Facility. In the space of less than three months, President Nicolas Sarkozy has responded by crafting two austerity plans to save €19 billion ($25.7 billion) by the end of next year. The second austerity plan came as the government slashed its 2012 growth forecast to gross-domestic-product expansion of 1% from 1.75% previously. Economists are now concerned that austerity could bite significantly into growth. Deutsche Bank analyst Gilles Moec said in a research note Monday that the two austerity packages and the tightening already programmed could take 1.2% off French GDP next year. Moody's noted in its report Monday that the growth outlook and the European debt crisis are "important risk factors" for the French government's finances. Mr. Baroin defended the government's austerity plans, which are mainly centered on tax increases in the short term, including VAT hikes. "These measures will not have a negative impact on growth of the French economy," he said. On a funny note : How about a list of actions eurozone holders can take to lessen the horror when the euro crashes in a disorderly fashion.
1. Buy non-EU currency. Which ones?
2.Buy gold.
3. Buy property rather than have cash in the bank.
4. Stock up on long life essential food supplies, batteries, paper.
5. Ensure at least 6-9 months of regular medications.
Could anyone give (sell) us a "Survival kit?"... Civil unrest anybody?

The government in Berlin is planning to purchase half of industrial conglomerate Daimler's shares in European aerospace giant EADS in order to ensure that the German holdings do not fall into the hands of foreign investors. The Economics Ministry announced Wednesday that 7.5 percent of the company's shares would be purchased through the government-owned KfW investment bank. A further 7.5 percent of Daimler's shares were parked at a number of banks several years ago in a deal the German government helped to broker. The shares are estimated to have a market value of between €1.2 billion and €1.3 billion ($1.62 billion and $1.76 billion). The Economics Ministry said the deal could not be completed prior to June 30, 2012 because of unresolved legal questions in the Netherlands. The air, space and defense firm is officially based in Amsterdam. On Wednesday, EADS did not comment publicly on the sale. "It has already been known for some time that we are in talks with the government, and we will make a statement on it at the appropriate time," a Daimler spokesman said. Sources within the Economics Ministry said the sale would ensure that the balance of power between Germany and France is preserved within EADS. KfW is also expected to maintain only temporary ownership of the shares, and the search for private investors is to continue. EADS was created in 2000 through the merger of aerospace firms in Germany, France and Spain. France and Spain are both owners in the company through state holdings. Since the European company's creation, the balance of power between shareholder countries has played a major role in EADS' development. United States diplomatic cables obtained by whistle blower platform WikiLeaks that were reported on in March provided insight into the conflict-ridden relationship between German and French employees at EADS. The company is best known abroad as the manufacturer of the highly successful Airbus line of commercial jets, a strong European competitor to America's Boeing.

Silvio Berlusconi has resigned as Italy's longest-serving post-war prime minister, bringing to an end a tumultuous, 17-year political career which was marred by sex scandals, corruption allegations and gaffes on the international stage. His departure came hours after the country's lower house of parliament approved, by a margin of 380 votes to 26, an urgently-needed package of economic reforms designed to tackle the country's €1.9 trillion debt, revive its sluggish economy and prevent it from going the way of Greece. After the vote, the 75-year-old billionaire media baron held a final meeting with his cabinet, and was then driven home to his official residence. There he consulted with party advisers, the final step before going to the presidential palace, on Rome's Quirinale Hill, where he gave his resignation to Italy's 86-year-old president, Giorgio Napolitano, a former Communist. A crowd of about 5,000 people erupted into jeers and boos when Mr Berlusconi arrived at the Quirinale Palace in a cavalcade of cars with a police motorcycle escort shortly before 8pm GMT. They shouted "mafioso" and "buffoon" as the prime minister swept into the main entrance of the building. Some protesters shouted, "You should die" and "Silvio, **** off." Given his advanced age and the fact that the coffin is waiting for him already, he has to use his remaining time as "productively" as possible. Imagine if he actually had to hand most of his billions to his heirs....Nah, that can't possibly be. So it's party time again.

Welcome back to my live blog, which will be covering the euro-zone leaders’ crucial meeting today where they will attempt to reach a definitive agreement to tackle the bloc’s spiraling debt crisis and market movements. There are worries that a deal will not be agreed, despite the urgency of the situation. The euro-zone leaders need to reach a deal on a second Greek bailout, including agreement on how much Greek bondholders will have to write off in so-called haircuts. They also need to confirm final details of a deal to boost the euro zone’s rescue fund–the European Financial Stability Facility. Meanwhile, the EFSF needs to be ratified today by the German parliament and Italian policy makers wrestle to come up with a solution to its debt mountain which satisfies both the EU and, perhaps more importantly, the markets.

The Italian Treasury paid higher yields Wednesday than a month ago to sell the planned €10.5 billion short-term debt, as markets remain tense over Italian political and economic prospects, and over the outcome of the European Union summit later in the day. The Treasury, which faces a further two debt sales this week, sold €8.5 billion in six-month Treasury bills and €2 billion of the September 2013-dated CTZ, a zero-coupon bond. It paid an average yield of 3.535% on the six-month T-bills, up from 3.071% previously. It paid a yield of 4.628%, up from 4.511%, on the CTZ. Demand was in line with previous auctions.
"The rising yields reflect increasing political uncertainty in Italy," said Tobias Blattner, director for economic research at Daiwa Capital Markets. "They also reflect uncertainty over tonight's summit, as hopes for a solution to the debt crisis seem now fading." Italy is at the forefront of euro-zone concerns with €1.9 trillion in debt, said Société Générale analysts. The country is facing simultaneous headwinds, including a cyclical slowdown which, in SocGen's view, will "almost certainly" lead to a recession in 2012 and 2013 and a structural loss of competitiveness, as well as an electoral system that prevents a clear-cut improvement in establishing economic policy.

France and Germany have reached an agreement to boost the eurozone's rescue fund to €2tn (£1.75tn) as part of a "comprehensive plan" to resolve the sovereign debt crisis, which this weekend's summit should endorse, EU diplomats said. The growing confidence that a deal can be struck at this Sunday's crisis summit came amid signs of market pressure on France following the warning by the ratings agency Moody's that it might review the country's coveted AAA rating because of the cost of bailing out its banks and other members of the eurozone. The leaders of France and Germany hope to agree a deal that will assuage market uncertainties or, worse, volatility, in the run-up to the G20 summit in Cannes early next month. France would now have to pay more than a percentage point – 114 basis points – over the price paid by Germany to borrow for 10 years as the gap between the two country's bond yields widened to their highest level since 1992. The news cheered US investors. All the major stock markets surged, with the Dow Jones Industrial Average rising 250 points, or 2.2%, to 11,651, after earlier falling by 101 points earlier in the day. US markets have previously reacted uneasily to any new news from Europe. Earlier in the day Goldman Sachs reported third-quarter losses of $393m, only its second loss in 12 years.

And they shall vote until it passes..." how about that?!

Slovakia's parliamentarians failed to ratify the expansion of the €440bn (£385bn) European Financial Stability Facility (EFSF). Opposition politicians in Slovakia, which is the only member of the eurozone not to have ratified the changes, have said they will approve the EFSF - but not without the removal of prime minister Iveta Radicova and her government. Richard Sulik, the rebel leader of the coalition's minority member, the Freedom and Solidarity Party, abstained from the vote. He told the parliament: "I'd rather be a pariah in Brussels than have to feel ashamed before my children, who would be deeper in debt should I back raising the volume of funding in the EFSF bail-out mechanism." Separately, the troika auditors - officials from the European Union, the European Central Bank and the International Monetary Fund (IMF) - reported that Greece's fiscal targets for 2011 were "no longer within reach". After weeks of scrutiny, the officials said that the Greek "recession will be deeper than anticipated"; that there was "no evidence of improvement in investor sentiment"; and that the structural reforms, though taking place, were "uneven".

It is not for the first time Slovakia has been against major eurozone policies since it adopted the currency in 2009. Last year, it rejected providing its 800 million euro share of the 110 billion EU bailout plan for Greece. That rescue went ahead without Slovakia, but another exemption for the country would cast doubt over the eurozone's credibility and ability to function as a bloc.

Nonetheless, many analysts are surprised at the power the small country wields. As Greg Anderson of Citigroup put it: "it seems somewhat unfathomable that a country that has not been a member of EMU for even three years could be the one leading to its unravelling."Slovakia prepares for a fresh vote on the eurozone bail-out fund and international lenders buy time for a broader response to the debt crisis with hints that Greece is likely to get a key loan next month."

Europe could melt down in two weeks — three tops — and take the world down with it, IMF adviser and Harvard economist Robert Shapiro says.
The fate of the industrial world's economy lies in European policymakers' hands.
"If they cannot address [the financial crisis] in a credible way I believe within perhaps 2 to 3 weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system," Shapiro tells the BBC, as reported by Zero Hedge. "We are talking about the largest banks in the world, the largest banks in Germany, the largest banks in France, that will spread to the United Kingdom, it will spread everywhere because the global financial system is so interconnected. All those banks are counterparties to every significant bank in the United States, and in Britain, and in Japan, and around the world."
Greece has been teetering on the brink of default for a while now, and European officials have been working with the country to keep it in the eurozone via aid packages. A default on its debts could damage the European banking system since banks across the continent are either directly or indirectly exposed to Greek debt.
U.S. banks exposed to Greek banks will feel the heat as well should Greece default and spark a crisis similar to the Lehman Brothers collapse in 2008.
"This would be a crisis that would be in my view more serious than the crisis in 2008," Shapiro adds.

Euro fear as Spain and Italy's debt ratings are downgradedBritish banks and building societies lose rating while pressure mounts on EU to restore faith in single currencyThe eurozone crisis intensified on Friday when Spain and Italy were downgraded by the ratings agency Fitch, heightening fears over the health of Europe's banks. Fitch's move came at the end of a day which had already seen 12 UK banks and building societies downgraded by the rival agency Moody's and amid speculation about co-ordinated European action to bolster the finances of the continent's banks by next weekend. The euro fell against most major currencies, piling fresh pressure on European politicians to restore confidence in the single currency. Germany's Angela Merkel said Europe needed to find a solution for its banks by 17 October. Analysts from Capital Economics estimate the total financial package may top €200bn (£172bn). Merkel and Nicolas Sarkozy of France are due to meet in Berlin on Sunday to discuss the crisis, with bank recapitalisation expected to be at the heart of their negotiations.

Fitch Ratings on Friday issued twin cuts to two of the euro zone's largest economies as it downgraded its foreign and local currency ratings on Italy and Spain. The cut on Italy—to A-plus from double-A-minus—leaves the ratings four steps down from the coveted triple-A designation. The outlook is negative. Alongside a broader debt crisis sweeping the euro zone, Fitch noted that Italy's high level of public debt and low rate of potential growth renders the regions' third-largest economy especially vulnerable to external shocks. On Tuesday, Moody's Investors Service slashed Italy's government bond ratings by three notches, citing a fragile market mood and mounting political uncertainty that could make raising debt more difficult. In a statement, the Italian government said the downgrade by Fitch was expected and "above all a reflex of an uncertain climate that is sweeping the euro zone." Pointing to Spain, Fitch lowered its foreign and local currency ratings two notches to double-A-minus from double-A-plus, pushing the ratings three steps down from triple-A. As cause for the cut, Fitch also cited an intensifying euro-zone crisis, adding that the firm expects Spain's annual economic growth to remain below 2% through 2015 and unemployment to remain high. Meanwhile, Fitch said its ratings on Portugal remain on watch for downgrade, and it intends to resolve its review in the fourth quarter, The review will look at the country's 2012 budget, risks to the banking system and its medium-term economic and fiscal prospects, among other things. Its foreign-currency rating is currently triple-B-minus, which is the lowest level of investment-grade territory.

Germany is said to support a move by the European Banking Authority to raise minimum capitalisation levels, a change that would lead to a need for financial support for banks with exposure to Greek or other sovereign debt risk. Mrs Merkel’s comments came as European Union finance ministers asked the European Banking Authority, Europe’s leading bank regulator, to test the strength of banks based on a large writedown of Greek sovereign debt, something many investors have called for. On Tuesday, the International Monetary Fund (IMF) had urged radical changes in the way the eurozone debt crisis was being handled and called for a €100bn to €200bn recapitalisation of European banks. Germany's intervention soothed markets but will intensify pressure on France. France, with banks that are among the most exposed, including its stake in Dexia, is opposed to recapitalisation. Nicolas Sarkozy, the French president, is concerned that the huge sums he might have to pay out could threaten the French AAA sovereign debt rating ahead of elections next year. Mrs Merkel dismissed suggestions that Greece could leave the eurozone and called on the last remaining national parliaments, in Holland, Malta and Slovakia, to approve measures allowing the €440bn European Financial Stability Facility (EFSF) to recapitalise banks and to buy bonds The EU and US are infected with uncontrollable spending, which is, clearly, the only thing that supports our Nanny State governments. We cannot grow out of this mess because government is too big and consumes too much of the economic energy in any state. Germany are still playing for time. This talk is just enough to keep the gravy train for Germany's exporter going with a shaky devalued euro. Germany still enjoys its economic miracle whilst presently inflicting pain on southern europe, Merkle's talk is that, all talk, Germany will not put up any real money.
Time for Germay, Finland, Austria, Netherlands, Luxumburg and perhaps france to leave the Euro.

Eurozone finance ministers have put off until next month any decision to give the green light for a further €8bn bailout for Greece despite recognising that the Athens government had made some considerable progress in slashing the country's debts. Jean-Claude Juncker, Eurogroup chairman, repeatedly made plain early on Tuesday that none of the eurozone countries was urging a Greek default and categorically denied that there was any question of Greece leaving the euro area. In a move certain to disappoint markets, the 17 finance ministers sent signals they had no intention of agreeing to reboot the zone's rescue fund of €440bn closer to the €2tn or more demanded by leading investors and analysts. EU officials reiterated that there was "no Plan B". But Juncker and Olli Rehn, the EU economic and monetary affairs commissioner, indicated that ministers had for the first time discussed measures to improve the bailout fund's efficiency and effectiveness in order to raise its firepower – code for raising the guarantees it needs for buying up more government bonds in the secondary market. Juncker said: "We consider that we should by no means increase the fund's financial volume." He dropped a broad hint that private bondholders would be forced to pay more than the 21% "haircut" agreed at the 21 July meeting that increased the fund's volume and approved the second €109bn bailout for Greece – ascribing that to "technical" reasons. Juncker and Rehn recognised Greece had made strides towards overcoming its debts and budget deficit but said that the Athens government had to be stricter about structural reforms and more ambitious in implementing privatisations.