IMF warns it could hold back bail-out cash without assurances that Greece will fulfil its commitments, but Papandreou is 'unable to give that', while EC President urges Greece to back eurozone package.

Eurozone chairman Jean-Claude Juncker is at the Cannes meeting, and he is not happy with Greece's decision to stop the bail-out process to give the public have a chance to vote. He said: "We took a decision last week as 17 (member states), we can't allow anyone to disassociate himself from that decision." But a pragmatic French official, also at the summit, said there was little chance of stopping them. The best they could hope for was to get the vote out of the way quickly. It is too late to persuade them to go back on the decision to hold a referendum. The idea is that they hold the referendum as quickly as possible and make it about being in the euro.Ben Bernanke said it was "a bit frustrating" to have to watch the Euro debacle from the sidelines and listed it in the run of "bad luck" that had held back US recovery alongside the nuclear accident in Japan and high oil prices. But he didn't give much insight into the Fed committee's thinking on the impact of European woes on the US or on what, if anything, the US can do to help the situation. Sadly he may have been silent because really there isn't much the US can do at all.The US markets seem to be having an unusually normal day. They started mildly up and have stayed there. There's almost a sense of "normalcy" as Americans like to say. No doubt there'll be a huge sell off or rally soon. For the record, the Dow Jones index is up 183 points, or 1.5%, with around half an hour to go.

Meanwhile, back in Europe, tensions are running high... A European Union official has given an interview to a small group of reporters in Cannes, appearing "angry and frustrated", according to the Wall Street Journal. The anonymous official said: I have no words to describe how I feel about Greece. Uncertainty is exactly what we don't need right now. If Greece were going to war tomorrow, they would establish national unity. Well, we are at war. The crisis is that bad. And it's time that Greece put party politics aside and demonstrate national unity. Greece as a country has to make it clear that they want to make the kind of effort that is necessary. If not, they have to bear the consequences. Papandreou, whether consciously or not, has called Europe's bluff. With a potential NO from the Greek people he could bring the European house of cards down. He is in a unique position, in my view, to renegotiate a bailout package with much more favourable terms for his people. And this is something that could benefit many other countries (Italy, Portugal etc). Truly, there can't be no growth in an economy - especially that of Greece - when what is imposed by the troika is no less than a reduction of people's real income by 1/3. Imagine what would happen to us here if the same conditions were imposed. I for one would not be able to pay my mortgage. And, what's more, the Left in Greece could play a vital role if in the end Pap's government falls (they would have to form an interim "national unity" government put together by their president). The New Democracy party (conservatives) are truly responsible for this mess in Greece and its current leader is really a laughable fellow. Let's just hope that it's the people who are favoured this time round and NOT the international markets and/or the banks.

The Uber speculators are annoyed with Europe now.

Humiliated European leaders, led by Angela Merkel and Nicolas Sarkozy, scrambled to prop up the Brussels agreement ahead of Thursday's G20 summit. The German Chancellor and French President announced they were "determined" to "ensure the implementation without delay the decisions adopted at the eurozone summit of October 27, which are today more necessary than ever" and have summoned Mr Papandreou to a pre-G20 crisis meeting in Cannes on Wednesday. Fitch said it was "highly uncertain what would be the impact of a no vote" in the Greek referendum. The ratings agency warned that securing a new international bail-out "could prove unobtainable", which would result in a "coercive and potentially disorderly default", while analysts said France's AAA rating was even more vulnerable. The Dutch Labour party called the referendum a "deal breaker" and said it would not support the Brussels accord if it were put to the vote. Jose Blanco, the spokesman for the Spanish government, said Greece's referendum was "bad news for Spain and bad news for Europe".

The Greeks are stuffed no matter what happens to the euro bailout ''plan''. Why should they care what happens to the euro or the franco-german euroempire dream. As if they bankers, the germans, french or anybody else will care when the Greeks are mired in austerity or worse. Let them vote...The EU coffin might have needed a few more nails than some thought, but the sticking plasters were never going to be a life saver & an even more painful death than would otherwise have been is on now the cards for the west.

Seriously hard times are ahead for us all, but at least it's a start of true freedom & some kind of future for our children as opposed to the marriage of Marxism & Capitalism dressed up in the name of free enterprise. Free enterprise, a sense of belonging, individuality & freedom of expression are values that have been crucified & suppressed to a socially engineered world increasingly devoid of inspiration & free spirit. We have a long way to go yet & utopia will always be a dream, but the foundations of the road ahead have commenced & the heretics are on the back foot. The danger is when the likes of Goldman Sachs see the pot melting, the threat of desperate measure are a serious risk to the masses. Lets keep a close eye on the Middle East & the tensions between Israel & Iran, which is a much closer link to the looming world financial meltdown than many would want to believe. Fortunately despite the lack of publicity, decent every day Israelis are also kicking off at the Zionist culture of greed & expansionism, demonstrating that Zionism is in truth nothing to do with true Judaism.

OECD secretary general Angel Gurria warned of "patches of mild negative growth" in 2012 and called for bold action from leaders attending the G20 summit in Cannes this week to implement the euro region's rescue package "promptly and forcefully". UBS chose to be more direct, cutting its growth outlook for the euro area from 1pc to 0.2pc and saying it was "now forecasting a recession for the first half of 2012". Warnings were also sounded about the global outlook, with the International Labour Organization suggesting that widespread unemployment could spark civil unrest. It claimed that only half the 80m jobs needed over the next two years would be created and that it will take another five years for employment to return to pre-crisis levels. According to UBS, the UK is in a relatively resilient position compared with the eurozone. "After underperforming the euro area this year, we expect GDP growth to exceed the euro area's in 2012," it said. However, it added that George Osborne may have to adjust his austerity programme to hit his targets or accept that he will fail to meet them. "If the economic recovery is as weak as we expect, the coalition Government will have to revise its fiscal plans," the UBS economists said.

Greece has to overcome six obstacles in order to obtain the sixth aid instalment and the new Memorandum of Understanding. The government faces its past failures, intraparty opposition and social unrest, as it is called to implement MoU and October 26 agreements without room for fresh delays. In fluidity of the situation, EU officials speak of Greece’s last chance. New delays would jeopardize the new loan and the sixth installment.
1. Until November 15, the disbursement of the aid installment requires ministerial decisions and interventions that would demonstrate that the medium-term program is under implementation. About 24,000 civil servants would be informed soon about their future, while interventions regarding SOEs, insurance and healthcare system are also required.
2 Troika representatives are expected in Athens in a month for the next audit, while new measures are likely. Privatization program, deregulation of closed professions and reforms in public sector should be accelerated.
3. Completion of the new loan agreements and the new MoU, which should be signed by the end of the year and would determine Troika’s supervision over Greece. The negotiations are anticipated to begin in a month.
4. 2012 budget should be finalized soon, providing forecasts of recession, revenue and expenditure, and including all measures in detail.
5. The new tax bill would be passed by the end of the year.
6. The completion of negotiation with private bondholders. The results would be announce in early 2012.

Responding to the riots that followed last week's proposal as well as dissent from within his own Socialist party, Prime Minister George Papandreou said: "The command of the Greek people will bind us. Do they want to adopt the new deal, or reject it? If the Greek people do not want it, it will not be adopted." Staging a referendum threatens to throw the euro zone further into crisis as the majority of Greeks object to the bail-out, according to a survey published last week. If Greece were to reject the plan, which requires deep spending cuts, it would risk a full-scale default and possible ejection from the euro. The country could even run out of money to pay civil servants or state pensions if the troika decided to pull the plug. European leaders and the IMF have struck a deal that would see banks take a 50pc write down on Greek loans, cutting the country's debt by up to €100bn, alongside a €130bn international rescue effort on top of the existing €110bn package. No dates have been set for the referendum, which would include a confidence vote in the government. Yields on 10-year bonds jumped to 6.18pc on Monday, while spreads over German Bonds reached 410 basis points, nearing the critical level where LCH Clearnet raises margin requirements. This, in turn, triggers further selling. However, The Greek Constitution permits referenda EXCEPT for questions involving potential revenue measures including taxation. On that basis any referendum in Greece on the aid package and accompanying revenue measures is unconstitutional.

Mario Draghi has little latitude for monetary stimulus. Germany has imposed a de facto veto on large-scale purchases of Italian and Spanish bonds, viewed by orthodox monetarists as a slippery slope towards debt monetization. Intesa Sanpaolo Giovanni Bazoli said the spreads are un stainable "not just in the medium run, but in the short run as well". He warned of a credit crunch in Italy as banks struggle to meet higher capital ratios set by EU leaders. The renewed jitters came as the OECD club of rich states slashed its euro zone growth forecast for next year from 2pc to just 0.3pc, implying an outright recession over the winter. The body called on the ECB to cut interest rates and deploy its full lending power to head off debt contagion to Italy and Spain. The OECD said the world risks a fresh crisis of equal magnitude to the Great Recession if authorities fail to act in time, with GDP contractions of up to 5pc in some big economies by early 2013. The ECB's new president The Bundestag voted last week to upgrade the EU's bail-out fund (EFSF) to around €1.2 trillion but only on condition that the ECB steps back from its support role. This pits Germany against much of the world. The US Treasury, the International Monetary Fund, and most leading economists fear the fund will fail without a central bank prop.

BEIJING - Chinese and European officials sought to play down expectations about when and how China may deploy its vast financial resources to help bail out indebted countries in Europe. A Chinese Vice Finance Minister said China must first see the details of a new European bailout fund before making any commitments. "We of course must wait until its structure is extremely clear," Zhu Guangyao told a press briefing. "And moreover, this investment must be decided on after serious, technical discussions."

Klaus Regling, the chief executive of the European Financial Stability Facility, flew into Beijing on Friday on the first stop of his trip. Klaus Regling is the
German Governor of the new Europe" de facto !

Not Germany, Austria, or Switzerland is Italy

This is not Germany, Austria, or Switzerland is Italy - It is Italy – a nation not known for its work ethic or admiration of rules and regulations, and one which, last week, seemed to be teetering on the brink of financial and political meltdown. "The rest of Italy definitely envies us," said Mr Durnwalder, who is president of the semi-autonomous South Tyrol region. The area, with its bilingual German and Italian population, sits on the geographic, political and cultural fault line of the eurozone. It has almost no unemployment, its inhabitants are among the richest in the country, and in stark contrast to city halls elsewhere in Italy, the local administration has no debt. "The rest of Italy envies the results," he adds with a chuckle. "But not the work." Italy, the euro zone's third largest economy, is again at the centre of the debt crisis, as fears grow that its borrowing costs could hit levels that overwhelm the capacity of the bloc to provide support amid chronic political instability in Rome. The situation was described as "confused and dramatic" last week by Mario Draghi, the new head of the European Central Bank - who himself is an Italian. Italy has the second highest public debt in the eurozone after Greece – the equivalent of 120 per cent of GDP – and is suffering from chronically stagnant growth. The three main credit agencies have all downgraded Italy recently, meaning that its economy is judged to be less secure than those of Slovakia and Estonia – the two poorest eurozone countries. South Tyrol, by contrast, an area of 3,000 square miles and 500,000 inhabitants that retains strong control over its own finances, retains Triple A Star credit rating. Average GDP per head in the area around Bolzano was €34,600 - more than double that of Sicily, which has a similar degree of autonomy - and South Tyrol's unemployment is barely two per cent. In Sicily it is around 25 per cent, and the regional economy is blighted by corruption, low productivity and poor administration. The rest of Italy, says Mr Durnwalder, must now likewise learn to live within their means, as they do in the Alpine valleys he calls home.

LONDON (Dow Jones)--Consumers in the euro zone΄s three largest economies are looking fragile at best as the region΄s debt crisis continues, according to data released Tuesday. Confidence among French and German consumers improved slightly in the latest surveys despite underlying concerns. But Italian consumer confidence hit its lowest level in more than three years. In Germany, the forward-looking consumer climate index for November ticked up to 5.3 from 5.2 in October, beating economists΄ forecasts for a 5.1 reading. German consumers feel shielded from the debt crisis as long as the labor market remains strong, market research group GfK said. But consumers in the euro-zone΄s largest economy are increasingly worried about the economic outlook. The economic expectations sub-component of the index fell in October to a 26-month low, dropping to -6.2 points from 4.8 points in September. "Ongoing discussions relating to the government debt crisis and the threat of Greek insolvency, which will also put pressure on banks, continue to unsettle Germans," GfK said. French consumer sentiment for October, meanwhile, improved unexpectedly, but national statistics agency Insee said consumer confidence remains well below its long-term average. The French sentiment index rose to 82 in October from 80 in September. Economists polled by Dow Jones News wires had expected a reading of 79. Barclays Capital European economist Francois Cabau attributed the increase to the survey΄s monthly volatility and said there is "only limited scope" for marked improvement by the end of the year. In Italy, consumer confidence fell in October to its lowest level in more than three years as fiscal austerity and a domestic political impasse weighed on household sentiment. The consumer confidence index declined to 92.9 in October from 94.2 in September, national statistics institute Istat said. Istat΄s figure reflects a dramatic revision of its data series, which is now benchmarked to the year 2005. Consumer confidence in September was previously reported as 98.0. Economists surveyed by Dow Jones News wires expected Italian consumer confidence to fall by only half a point. The new October figure represents, in the revised data series, an almost 10-point drop from June, when Italian sovereign debt yields began to climb dramatically and credit rating companies began to raise vocal concerns about the country΄s political stability.

NOTES about EFSF - I've read before that the EFSF is permitted to issue bonds denominated in currencies other than the euro, but the governments of the euro zone states have promised to provide guarantees denominated in euros, and I doubt that all 17 national parliaments have passed laws authorizing their governments to provide guarantees denominated in any other currency and laying down conditions for them to do that, especially regarding the applicable exchange rate“We have so far only issued euro bonds but we are authorised to use any currency we want if it seems efficient,” Klaus Regling, chief executive of the European Financial Stability Facility (EFSF), said. "It also depends on the Chinese authorities, whether they would approve that. I think it is probably more difficult. But I could imagine that over the years it might happen," he added. China has the largest foreign exchange reserves in the world, valued at $3.2 trillion (£2 trillion) . Mr Regling also said that investors may be protected against a fifth of any initial losses. “The EFSF will take a certain tranche that will be a junior tranche, which means if something goes wrong, the first loss will be carried by the EFSF. It could be around 20pc,” Mr Regling said in a speech at Tsinghua University.

"To fulfill its mission, EFSF issues bonds or other debt instruments on the capital markets. EFSF is backed by guarantee commitments from the euro area Member States for a total of €780 billion and has a lending capacity of €440 billion."

Therefore if I was the responsible person in the Chinese government, or indeed any other investor who might be interested, I would be looking ahead to how the yuan-euro exchange rate might change during the lifetime of the bonds denominated in Yuan. To the extent that I anticipated that the yuan would strengthen against the euro, I would also anticipate an effective weakening of the euro denominated guarantees of yuan denominated bonds. To take a simple illustration, if I anticipated that the value of the yuan would double against that of the euro then I would calculate that if the EFSF only issued bonds denominated in yuan then the effective value of the €780 billion total guarantees would be halved, meaning that its effective borrowing and lending capacity would be halved from €440 billion to €220 billion. And if the EFSF is expected to provide guarantees to assist a second SPV or SPIV to borrow much larger sums, anything which erodes the effective value of the guarantees provided to the EFSF by the eurozone state governments must also erode its capacity to provide guarantees to that larger SPIV.

How fortunate for governments that the people they administer don't think-.A.H.

An astonishing outburst from Silvio Berlusconi, the embattled Italian prime minister, being reported on Bloomberg. Here's a taste of the flashes we are seeing:

• The euro 'hasn't convinced anyone'.
• The euro is a strange currency.
• Italy is the 'most solide' EU country after Germany
• Austerity measures won't work without growth
• Financial markets 'don't forgive' Italy for its large public debt

In the mean time
• Markets slip as euphoria over EU summit deal fades - it's all a fraud, the deal is fake!
• Italian bond yields close to danger levels despite crisis plan (the plan is a fake)
• German court suspends bail-out fund decision committee
• Eurozone bail-out fund chief warns, no quick China deal

Euro was invented to facilitate the taking over of the European energetic capacities as well economic resources in general by Russia. It was hard to do so having 27 different currencies! Now, Germany is taking over the administration of governments just as it happened before WW 2. Long live the 4th. Reich !

Greece has a "governor" - Horst Reichenbach

BRUSSELS (Dow Jones)--Some Greek banks may have to be nationalized after the application of the agreed 50% write down in nominal value of Greek bonds held by the private sector, as part of new euro-zone package for the country, Greek prime minister George Papandreou said Thursday. Speaking to reporters after the conclusion of a marathon euro area leaders΄ summit, Papandreou said Greek banks would be re capitalized with official funds that would come out of the country΄s fresh EUR130B bailout package. "If the private sector can overcapitalize the banks they can do that but if they can΄t it means the official sector will need to. That will mean a temporary passage of ownership to the state. After restructuring they will be sold back to the private sector," Papandreou said. He also said the details of the new package would be worked out over the next few weeks. "We want to be done with this," he added. Asked if he was contemplating calling an early election or seeking the formation of a government of national unity, Papandreou said that Greeks want changes, not elections. "We will continue to seek the maximum level of consensus possible," he added.

The Chancellor of the Exchequer and stock markets have welcomed the decisions made by European leaders last night, but banking analyst Ian Gordon of Evolution Securities begs to differ. Calling the bank recap plan "weasel words from Brussels", he says: European bank overcapitalization remains an aspiration rather than a reality, and it is crystal clear that the Europeans have no intention of ever signing up to the sheer excess that the UK regulatory metters foist upon our own banks. The commitment to “a significantly higher capital ratio of 9pc” to create a “temporary buffer” is pretty lame, and has deferred implementation. We may not see the full “targeted” €106bn raised in the next 8 months.

Here's a summary of what was agreed:
• The firepower of the EFSF bailout fund will be increased to $1.4tn (€1tn).
• Banks agree 50% writedown in the face value of Greek government bonds.
• Athens will be handed a new €100bn bailout early in the new year.
• Bank recapitalisation - banks required to hold up to 9% of tier 1 capital by June next year, with a figure of €100bn mooted.

Michael Hewson, market analyst at CMC Markets, said: The question is whether it will be enough in the long term, or whether it has merely put off the day of reckoning, for a little while longer. While we now have some numbers to go on it will be all rather pointless of leaders don't find a way to stimulate growth and we still have the question of Italy's finances. Given that the extent of private sector involvement for Greek haircuts has finally been agreed at 50% it is difficult to estimate how EU leaders arrived at the figure of €100bn, which seems rather low, given the 50% amount agreed.

Italians woke up wondering whether their country had just become a Brussels protectorate. This morning's statement invites the Commission to provide a detailed assessment of the measures pledged by Silvio Berlusconi's government in a letter delivered to the summit "and to monitor their implementation". Radio 24, the station owned by Italy's bosses' union, said on its morning news it amounted to putting the country into special administration. The other focus was on the reaction of the unions to a promise in the letter to make it easier for employers to fire workers in times of crisis, either for their firm or the economy. Raffaele Bonanni, head of the moderate, Catholic-oriented CISL trade unions federation, called it "an incitement to revolt". Silvio Berlusconi somehow found time to do a quick interview with a late-night TV chat show in which he claimed Angela Merkel had apologised to him for the now-famous "smirks" between her and Nicholas Sarkozy last weekend when asked about their faith in Italy's ability to deliver on its undertakings. But Steffen Seibert, Angela Merkel's spokesman, flatly contradicted him on on Twitter saying there had been no apology "because there was nothing to apologise for". At all events, the rift with France remains and is motivated more by Lorenzo Bini Smaghi's refusal to leave his seat on the ECB board where Italy will soon have two seats while France remains unrepresented. Italian reporters noted Sarkozy avoided any contact with Berlusconi last night, and the prime minister himself admitted he had been unable to speak to the French president. In his TV interview he appealed to Bini Smaghi to step down.

The overcapitalizing of Europe's banks will not in itself solve the sovereign debt crisis. However, this plan is set within a timeframe that should enable them to determine how best to strengthen their capital positions in ways that treat all stakeholders fairly and allow the banks to fulfil their role in supporting Europe's economic recovery. The hardest bit of the deal was Greece, whose debts are on track to balloon to 180% of GDP by 2020. To reduce this to 120% of GDP, private creditors will be asked to accept 50% losses on the bonds they hold. The Institute of International Finance, the banks' lead negotiator, said it was committed to working out an agreement based on that "haircut". But the challenge now will be to ensure that all private bondholders fall in line. The 50% cuts equal a contribution of €100bn to a second rescue for Greece. The details are yet to be worked out, and the move has been sweetened by the inclusion of a €30bn contribution from euro zone member states to guarantee the remaining value of the new bonds.

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.

Germany is thought to be pushing hard for banks to take a 60% write-down on their holdings of Greek government bonds, but France had been insisting the cut shouldn't be much higher than 40%, EU officials have said in recent days. WSJ's Brian Blackstone reports that while European leaders are scrambling to strike a deal to rescue ailing economies, a new business survey paints a pessimistic picture of economic strength. The banks are signaling that a 60% cut wouldn't be deemed voluntary and could trigger a raft of claims for insurance contracts, known as credit-default swaps, to cover bond losses, according to senior euro-zone and International Monetary Fund officials. Late Monday, Charles Dallara, the head of the IIF, warned of "severe contagion" if the euro zone imposes a non-voluntary deal. He said there are "limits" to what can be called a voluntary deal. While euro-zone national governments—and the commission—are saying officially that they want a voluntary deal, one euro-zone official said it is clear that some in Germany would rather impose a "brutal" restructuring and that Greece's private creditors are aware that if they don't compromise, a large Greek haircut will be unilaterally imposed. "The bankers know that if they don't play ball the risk of a hard restructuring is still there," the person said. Failure to pin down specifics on the future of the EFSF at the EU summit could keep pressure on the fund's borrowing costs, which have climbed over the last few weeks amid the uncertainty.

Whatever the outcome of this weekend's on - off, on again summit, it seems unlikely the 17 euro countries will get what's needed, given Germany's entrenched reluctance. As we predicted after the July 21 summit, Europe's leaders continue to fall behind the problem they're trying to solve. That's a constantly evolving debt crisis that gets bigger by the day. It doesn't stop and wait, its morbid momentum reflected in markets since early summer. What we'll see revealed in Brussels this weekend is that the euro zone is not just a flawed currency system, but it is also a flawed political system incapable of being led and incapable of making the difficult, often painful decisions required. Could it, for instance, ever impose the sort of fiscal discipline being attempted in the UK or the bank overcapitalization already complete here? I doubt it. That's not to be complacent about our own parlous position. We may be implementing fiscal and monetary policy decisions, but are they working? This crisis, whether elsewhere or in the euro zone, is like a virus mutating against a vaccine. Europe isn't using enough medicine while rest may have already administered what they can without any meaningful effect. The patient remains ill and the drugs aren't working.Markets slide on reports of deadlock between France and Germany in talks over how to expand the eurozone bailout fund, making a resolution by this weekend's crucial summit increasingly unlikely. Silvio Berlusconi has named Ignazio Visco as the new head of the Bank of Italy. He wasn't one of the favourites in the running for the job, which won't be an easy one at the moment. He's the existing deputy director general of the bank. Visco will take over from Mario Draghi, who is taking over from Jean-Claude Trichet as head of the European Central Bank.

Last night's farewell gala in Frankfurt for ECB president Jean-Claude Trichet, who steps down at the end of the month, was a lavish affair by all accounts. The two-hour event at Frankfurt's historic Alte Oper concert hall, interspersed with musical interludes, was attended by a number of political dignitaries such as former French president Valery Giscard d'Estaing and former German chancellor Helmut Schmidt who fell over themselves to praise Trichet as a great European. Schmidt, wheeled onto the stage in a wheelchair, used the opportunity to lash out at the "dramatic inability of the EU's political bodies to curb the dangerous turbulence and uncertainty". Only the ECB directorate, under Trichet's leadership, he said, had proved effective and able to act. "The constant talk of a 'euro crisis' is mere chatter on the part of politicians and journalists," Schmidt said. "In truth, we have a crisis in the ability to act of the EU's political bodies. This inability to act is a much bigger danger for the future of Europe than the over-indebtedness of individual eurozone countries." Trichet, who turns 69 in December, will hand over to Italy's Mario Draghi on 31 October. The farewell gala began with a short film spanning the Frenchman's eight-year reign and ended with a concert by the Mozart Orchestra under its founder and chief conductor, the legendary Italian maestro Claudio Abbado.

The Spanish and French bond auctions have gone reasonably well this morning. Spain sold €3.91bn of government bonds in its first auction since Moody's cut the country's sovereign rating by two notches on Tuesday. France sold €7.49bn of fixed coupon bond and is due to sell inflation-linked debt later, only days after Moody's warned its top credit rating could be under threat.

To understand the mess we are in, it's important to know how we got here. Today marks the 40th anniversary of Richard Nixon's announcement that America was suspending the convertibility of the dollar into gold at $35 an ounce. Speculative attacks on the dollar had begun in the late 1960s as concerns mounted over America's rising trade deficit and the cost of the Vietnam war. Other countries were increasingly reluctant to take dollars in payment and demanded gold instead. Nixon called time on the Bretton Woods system of fixed but adjustable exchange rates, under which countries could use capital controls in order to stimulate their economies without fear of a run on their currency. It was also an era in which protectionist measures were used quite liberally: Nixon announced on 15 August 1971 that he was imposing a 10% tax on all imports into the US. Four decades on, it is hard not to feel nostalgia for the Bretton Woods system. Imperfect though it was, it acted as an anchor for the global economy for more than a quarter of a century, and allowed individual countries to pursue full employment policies. It was a period devoid of systemic financial crises. The break-up of the Bretton Woods system paved the way for the liberalisation of financial markets. This began in the 1970s and picked up speed in the 1980s. Exchange controls were lifted and formal restrictions on credit abandoned. Policymakers were left with only one blunt instrument to control the availability of credit: interest rates. For a while in the late 1980s, the easy availability of money provided the illusion of wealth but there was a shift from a debt-averse world where financial crises were virtually unknown to a debt-sodden world constantly teetering on the brink of banking armageddon. Currency markets lost their anchor in 1971 when the US suspended dollar convertibility. Over the years, financial markets have lost their moral anchor, engaging not just in reckless but fraudulent behaviour. According to the US economist James Galbraith, increased complexity was the cover for blatant and widespread wrongdoing. Looking back at the sub-prime mortgage scandal, in which millions of Americans were mis-sold home loans, Galbraith says there has been a complete breakdown in trust that is impairing the hopes of economic recovery.

Italian households and businesses are sitting of the biggest stockpiles of private cash in Europe. There are three reasons for this. The huge Italian black market means that many transactions go unrecorded. The arrival of the euro means that unrecorded transactions have spread into the rest of Europe and especially eastern Europe. The peculiar nature of Italy's economy. Not only does it have a massive agricultural sector and enormous tourist industry, but it also has a vast industrial base in the north made up substantially of small firms who intertrade. It is the intertrading, much of it unrecorded, between all these enterprises, industrial, agricultural and touristic, both at home and abroad, which generates stockpiles of private cash.
Add to that the high Italian savings ratio and you have the biggest deposits of private cash in Europe, all denomitaed in euros so it keeps its value. The Italian govt on the other, hand, takes all the nation's debt upon itself. Bereft of potential tax receipts, it issues more and more bonds to fund its activities. Now these bonds are being supported by Italy's eurozone partners in order to protect the euro.
Effectively Italy's public debt is being paid off by foreigners, while the Italians get to keep their mountains of private money.

In a strongly worded report to German parliamentarians, Wolfgang Schaeuble explained that the €159bn Greek bail-out was a one-off. He said: "In the future such purchases must only take place under very tight conditions, when the European Central Bank establishes that there are extraordinary circumstances in financial markets and dangers to financial stability." Mr Schaeuble echoed German Chancellor Angela Merkel, who said the union's bail-out fund, the European Financial Stability Facility (EFSF), should not be allowed to engage in "unconditional" buying of bonds from stricken members. Traders interpreted the letter as a strong signal Germany could not be depended upon for standing by the euro indefinitely. Just a week after European authorities united to rescue Greece, experts fear authorities are already again struggling to contain the region's sovereign debt crisis. Cyprus threatened to become the fourth eurozone country to need a bail-out after Standard & Poor's downgraded its debt further into junk territory, lowering it to CC from CCC. The rating agency raised concerns that Cyprus' large exposure to Greek bonds - which is among the highest in the eurozone - might hamper its ability to service its own sovereign debt. According to the European Banking Authority, Bank of Cyprus holds €2.4bn in Greek debt and Marfin Popular Bank holds €3.4bn. Yields on Cypriot bonds maturing in 2014 soared to 10.18pc - above the borrowing rates of Ireland and Portugal, which have both been bailed out.

BRITAIN'S economy SHRANK for the first time since the recession in the run-up to Christmas — shock figures showed today. Output DROPPED by 0.5 per cent between October and December — beyond even the gloomiest predictions in the City. The Office of National Statistics put ALL the slide down to the coldest winter for 100 years. But experts said the figures put huge question marks over the recovery — and the record of the Coalition. CBI chief Richard Lambert yesterday slammed the government for its lack of a "vision" on growth. Charles Davis, economist at CEBR, said: "Clearly, even without the effect of the weather, the data points to a complete loss of momentum in the recovery. "Few of us could have expected such a sharp contraction in output. "And the UK economy now faces the prospect of returning to recession." The Chancellor admitted the figures were a disappointment — but said the government would "not be blown off course by bad weather". George Osborne insisted he had no intention of letting-up on the government's spending cuts. He said: "There is no question of changing a fiscal plan that has established international credibility on the back of one very cold month. "That would plunge Britain back into a financial crisis." The ONS revealed the biggest drop in output between October and December came in construction — 3.3 per cent. Hotels, restaurants and air transport also shrank in the winter freeze.