With the Greek emergency cabinet meeting over, and George Papandreou still clinging to power (and determined to win the upcoming confidence vote), this feels like a good time to end this blog.
Thanks for many (many!) excellent comments. Please do come back tomorrow - as we gear up for the G20 summit in Cannes.
Here's a summary of the main events of a quite remarkable day.
? The Greek government appeared to wobble today after the decision to hold a referendum on the European debt. One official told us: "The government is about to collapse".
? George Papandreou, though, insists the referendum will go ahead. He also hopes to win Friday's vote of confidence.
? Financial markets tumbled. The FTSE 100 lost 2.2%, while there were deeper losses in Germany and France
? In a surprise development, several top Greek military officials were replaced today. The chiefs of the Greek National Defence General Staff, the Greek Army General Staff, the Greek Air Force, and the chief of the Greek Navy all got their marching orders.
? EU leaders will meet in Cannes on Wednesday night to discuss the crisis. Again
? Italy remained under pressure. The yield on its bonds rose to worrying levels.
Good night!
Here's a video of Nicolas Sarkozy speaking about today's events.
Wall Street has closed for the day, with many shares deep in the red. The Dow Jones provisionally ended 297 points lower, or 2.48%, at 11,657.
Finally, some news from Athens. Reuters is quoting a Greek government spokesman, saying that Papandreou told the cabinet that he intends to hold a referendum - despite the alarm that the plan has provoked today.
In addition, the government believes it will win Friday's vote of confidence.
This news has sparked a late sell-off on Wall Street, where the Dow Jones index is hitting staring at 300-point losses for the day (it closes at 8pm GMT, so under 10mins time).
George Papandreou's referendum proposal is "either sophisticated chess, or the last roll of the dice". That's the verdict of David Miller, a partner at Cheviot Asset Management, tonight:
Papandreou's strategy could well be to smoke out the opposition by winning the confidence vote on Friday, and then try and gain approval for the austerity plan by presenting it as the best of the two unpalatable options.
That said, at this time subtlety isn't going to reassure the markets. Today's market reaction was a clear sign that a disorderly Greek default has not been priced in and that the good will generated by last weeks announcement has evaporated.
Papandreou has received one piece of good news - independent MP Elsa Papadimitriou has indicated that she may vote in favour of the Pasok party in Friday's confidence vote, as early elections would be "disastrous"....
Over in Rome, Silvio Berlusconi appears to have his own problems. The Italian prime minister spoke to president Georgio Napolitano today to discuss his austerity measures, and reportedly pledged that various opposition politicians were prepared to "assume the necessary responsibilities".
In response, Napolitano released a statement which appears to suggest he is considering changes to the Italian government, to ensure the plan goes though, and that Italy retains the support of the international community.
As he put it:
In the current critical moment, the country can count on a broad range of political and social forces conscious of the need for a new perspective of broadly shared choices which Europe, international opinion and economic and financial actors urgently expect of Italy.
The Head of State considers it his duty to verify whether the conditions exist to implement such a perspective.
Nicolas Sarkozy has held talks with his central bank governor tonight to discuss the Greek debt situation. Speaking afterwards in Paris, the French president has reiterated that last week's deal must be implemented enforced:
The plan is the only way to solve Greece's debt problem
Also hearing that the showdown talks between Sarkozy, Merkel and other officials will take place in Cannes at 18:00 CET (so 5pm GMT, or 1pm if you're on the East Coast of America). Greek representatives (including Papandreou?) are then due to join the gathering at 21:00 CET (that's via ITV's Laura Kuenssberg).
We still have no word from Athens about the cabinet meeting that was due to start over two hours ago. However, there are reports that the idea of putting the bailout terms to the Greek population may already have been shot down.
Dow Jones is quoting a Socialist Party official who says the idea of a referendum vote on Greece's bailout plan is "basically dead".
If true, that would come as a relief to Europe - and has already helped the Dow Jones index recover to a fall of just 1.5%. However, it would appear to leave George Papandreou in a fairly tricky position.
While we're flagging up rumours, Bloomberg is reporting that Evangelos Venizelos is to undergo surgery to deal with his inflamed appendix.
Now this really is something. The top officials in the Greek military have been replaced today.
In what Athens News is calling "a surprise move", defence minister Panos Beglitis has proposed changing the chief of the Greek National Defence General Staff, the chief of the Greek Army General Staff, the chief of the Greek Air Force, and (in a clean sweep) the chief of the Greek Air Force.
EU Observer reported earlier today that Beglitis was rumoured to be planning to replace the existing chiefs with "his own people".
Last month he claimed that the Greek military establishment was a "state within the state."
Today's move has prompted some eager speculation that Beglitis was trying to break up a military coup, but there's no evidence (that I've seen) that this is really true. History buffs will know that we're approaching the anniversary of the start of the 1973 revolt against the Colonels who ran Greece. Those protests began on November 14, and were followed by heavy bloodshed on November 17.
Louise Cooper of BGC Partners comments that Papandreou has done a remarkable job of moving the markets today, as well as upsetting Nicolas Sarkozy and Angela Merkel.
While bank shares were "crushed" (with BNP Paribas down 12%. Societe Generale down 16%, and Barclays down 10%), the "really spectacular moves" have been in the European government bond markets:
There was massive buying of German bunds - 10 year yields falling to 1.7% down 28bp which is an enormous move. And big buying of UK gilts, with 10 year yields down just below 2.2%, down 25bp, again an enormous move.
Interestingly France is no longer included in this flight to safety, with French 10 year yields down only 16bp to reach 2.9%.
The yield spread of most European bonds over Germany have widened out to record Euro era levels, with French borrowing costs almost 120bp, or 1.2% higher than Germany.
Italian 10-year bond yields. Photograph: Bloomberg/BGC The most alarming move, though, is in Italian bond yields, as the above graphic shows.
Ten year Italian borrowing costs are currently up 12bp to 6.2%, although the yield had been up over 20bp to reach 6.3% earlier in the day. It is Mario Draghi's first day heading up the ECB and the first thing he has to do is buy shed loads of his country's debt because no one else wants to (am hearing that the ECB has been in and buying).
The guys at M&G Bondvigilantes reckoned that the ECB had bought around ?3bn of sovereign debt by mid-afternoon, below Monday's ?5bn figure.
The US government has just commented on the ongoing European debt crisis.
White House press secretary Jay Carney said today's developments show the need for Europe to "elaborate further and implement rapidly" the deal that was agreed last week.
To an English ear, that sounds like a polite way of saying "Will you just get a goddam move on, guys?".
Carney also reiterated that Washington still believes Europe has the ability to solve the crisis, and is confident it can do so. Hard to believe America can say much else at this stage without making the situation even worse.
European stock markets have just closed for the day, and there are some very deep losses.
Germany's DAX closed down 5.0%, losing 306 points to 5834. The picture was even worse in Paris, where the French CAC lost 5.38%, or 174 points, to 3068.
The big losers were the banks, especially those with large exposure to Greece. Societe Generale plunged by 15.4%, while Intesa Sanpaulo lost 14.4%.
In the City, the FTSE 100 shed 122 points, or 2.2%, to 5421.
And in New York right now, the Dow Jones has lost 2.5%, or 304 points, at 11,650. There's still three more hours of trading before Wall Street closes, of course.
In short, a Bad Day for the markets. As Joshua Raymond, chief market strategist at City Index in London commented:
At the heart of the issue here is the fact that just when investors had hoped that perhaps, Europe had aligned itself with solutions, the very people thought to have aligned remain some distance apart.
Europe cannot contain the Greek crisis without adherence from Greece and the latest move to call a referendum takes the crucial decisions of the few and places them into the hands of the many, the same many that are already seething with discontent at the very people trying to resolve the problems.
We have an update on the condition of Greek finance minister Evangelos Venizelos. who was taken into a clinic with stomach pains this morning.
His staff insist that this isn't a "diplomatic illness" (despite Venizelos not been told about the plan for a referendum). Instead he apparently has an "inflamed appendix".
"He's really suffering", one official told Helena Smith. It is also not clear whether he will be released in time for the emergency cabinet meeting (which appears to be running late).
As we said this morning, this is the latest in a string of illnesses to hit Greece's overworked officials and leaders.
To clarify something we wrote earlier, the letter calling for Papandreou to resign was sent by six party officials rather than MPs.
However, that isn't really any better for the prime minister, as these officials serve on the National Council which appoints the head of PASOK.
Our Athens correspondent Helena Smith also tells me that three MPs have now 'publicly questioned' Papandreou's position as party leader (following the defection of Milena Apostolaki this morning). They include veteran socialist MP Vasso Papandreou (no relation of the PM).
These three deputies have three demands: for Papandreou to consider his position; the creation of a 'National Salvation Government'; and early elections.
Government insiders say the current situation shows how embattled and isolated Papandreou has become. However, while there is talk of elections within three weeks, there is also a recognition that Papandreou has come through plenty of crises before.
In another development, the latest economic data out of America has added to fears that the global economy is struggling.
The monthly US manufacturing data from the Institute for Supply Management came in below expectations, and showed that America's industrial sector only grew narrowly last month.
The ISM index fell to 50.8 in October, from 51.6 in September. Any number above 50 means the sector grew, while a number below 50 means activity declined.
Some experts were relieved, though, that the sector still managed "anemic" growth. As my colleague Nick Fletcher reports here, most of the slowdown was due to a drop in the prices paid by companies:
Analysts suggested the figures may not be as bad as they looked at first sight, easing pressure on the US Federal Reserve to act following the conclusion of its latest meeting on Wednesday.
Capital Economics said there was "little in October's ISM manufacturing survey to suggest that the US economy has moved any closer towards another recession. But equally, there were no real signs that economic growth is strengthening."
Analysts at Capital Economics have warned that three factors have triggered a sudden, deep, drop in confidence today. They are:
? The prospect of a Greek referendum
? The collapse of MF Global yesterday
? The "lukewarm response" of emerging market investors to the idea of lending more to troubled euro-zone countries.
Capital Economics predicts this will push much of Europe back into recession, and also have serious consequences for the single European currency:
We expect the crisis to build, prompting a prolonged recession in the euro-zone, further turmoil in the markets and, at some point, the end of the euro itself in its current form.
My colleague Larry Elliott is currently holding a live Q&A on economic matters, following the release of the third-quarter GDP data this morning (showing the economy grew by 0.5%). He's discussing the global economy, the risk of a double-dip recession, trade imbalances, and more.
Well worth a read, and running until 4pm.
The Financial Times is also reporting that the Greek government is wobbling ahead of this afternoon's cabinet meeting.
From the FT's live blog:
"Forget the referendum and even the vote of confidence. The government could crumble tonight," says one veteran socialist.
That follows the call from six officials MPs for George Papandreou to step down as prime minister.
This just in -- Nicolas Sarkozy and Angela Merkel have agreed to meet in Cannes on Wednesday to discuss the situation, along with representatives from EU institutions, the International Monetary Fund, and the Greek government.
This meeting will discuss "full implementation" the agreement reached in Brussels last week (which did not include a Greek referendum). In other words, they will not accept any shirking or backtracking from Athens.
The decision to meet was taken during a phone call between the two leaders. A German government spokesman has just told reporters that Merkel and Sarkozy also agreed on the need for a "timeline" for implementation (which probably won't include waiting until January 2012 for the Greek people to have their say).
Cannes, of course, is the venue for the G20 summit to discuss the financial crisis, which starts officially on Thursday morning.
News of tomorrow's meeting has been welcomed by the financial markets, dragging share prices up from their lowest points. The major indices are still deep in the red, though, with the FTSE 100 down 126 points, or 2.2%.
The six officials MPs who have called for George Papandreou's resignation are currently holding talks with the parliament's president Fillipos Petsalinikos, Helena Smith reports from Athens.
Rumour is rife that they, too, will break away from the ruling Pasok party and proclaim themselves independents which would rob Papandreou of a working majority in the 300-seat House.
"It's all over. The government is about to collapse," said an official.
Helena has also spoken to a Venizelos insider who insists that the finance minister, who is still recuperating in the hospital with stomach pains, has "no clue" about the referendum before Papandreou announced it.
The insider said:
"He only knew of the PM's decision to call a vote of confidence in the government and when he heard about the referendum his reaction was 'well have you told foreign leaders about his? He was absolutely horrified to hear that he had not and insisted that he write a letter to them immediately."
Wall Street has joined in the global market rout - with the Dow Jones index falling more than 260 points, or 2.2%, at the opening bell. That still leaves the index much higher than a month ago, though.
The shockwaves from the Greek referendum are being felt in Moscow too, where the Russian stock market is currently suspended due to "technical problems". Before authorities acted, it was down 3.2% today.
Photograph: Pantelis Saitas/EPA News is breaking that George Papandreou has called an emergency cabinet meeting for 4pm GMT this afternoon. That is going to be quite an event - our correspondent Helena Smith has confirmed that six senior members who sit on his party's national council have called on him to resign following the shock referendum announcement:
"Many appear to be aligned to former prime minister Costas Simitis, a staunch Europeanist who oversaw Greece's entry into the EU. The call follows the surprise resignation of socialist MP Milena Apostalaki, a one-time close colleague of Papandreou, who described the referendum as "deeply divisive process" at a time when the economic crisis engulfing Greece had assumed "uncontrollable dimensions."
Apostalaki said she would henceforth sit in the 300-seat Athens parliament as an independent - thus lowering Papandreou's fragile majority to two parliamentarians. It is not ruled out that more MPS will follow suit.
Papandreou is expected to make a statement after this afternoon's meeting. Any suggestions for what he should say?....
The US markets are set to open sharply down, minutes before the opening bell, Dow Jones Industrial Average futures had slumped 276
points, or 2.26%, our Wall Street correspondent Dominic Rushe writes:
Spookily the Dow also slid 276 points on Monday, its biggest-point drop since late September.
But to put this in context, the Dow rose 1042 points, or 9.5%, during October, the biggest monthly point gain it its 115-year history. For all the woe Greece is calling, US markets have a long way to fall before we can truly say investors are panicking.
The escalating Greek political crisis (see here, here, and here) is causing alarming scenes in the financial markets.
The FTSE 100 extended its falls to a low of 5338, that's a 206 point fall, or 3.5%. Germany's DAX is down 6%, with the French CAC little better with a 5.5% decline. All eyes are now on Wall Street, which opens in ten minutes.
For a real horror show, though, try the bond markets. The yield (basically the interest rate) on 10-year Italian bonds is now up at 6.34%, despite the European Central Bank's efforts to buy up peripheral debt.
The ECB will be desperate for that yield to keep away from 7% - the point at which a bailout looks a dead certainty.
German interest rates, though, have dropped sharply as investors rush to put their money in the safest places. The 10-year Bund is now yielding just 1.79%, down from over 2% yesterday. UK yields have also dropped sharply, down to 2.23% from around 2.45% on Monday.
George Papandreou's cunning plan for a referendum on the bailout may be blowing up in his face. Greek news agency ANA is reporting that six members of his PASOK party have called for his resignation.
ANA, which Reuters dubs a 'semi-official' news agency, says the six MPs have signed a letter stating that Greece needs a new prime minister. The letter says that:
"The country urgently needs a politically legitimate government, a plan for a national revival."
Hoping to get hold of this letter....
Was Evangelos Venizelos, the Greek finance minister who was taken to a clinic with stomach pains this morning, consulted about the plan for a referendum? Not according to a government insider quoted on Reuters, who says Papandreou's plan came as a surprise.
"Venizelos had no idea about the referendum. All he knew about was the vote of confidence," a government official told Reuters on condition of anonymity.
It also appears that Venizelos has spoken with several leading European officials including German finance minister Wolfgang Schaeuble, EU Monetary Affairs Commissioner Olli Rehn and IMF mission chief for Greece Poul Thomsen to try and keep the Greek bailout on track.
Andrew Sparrow, our senior political correspondent, alerts me that Ed Balls has criticised the austerity measures imposed on Greece. The shadow chancellor also appeared to suggest that the Greek people should use the referendum to vote against the plan agreed last week.
Here's Balls' quotes (via Politicshome):
It's very surprising indeed to have a deal last week announced at a summit with no detail, which I'm afraid hasn't looked that strong since, and now with the Greek government making this decision, seemingly without coordination with the other eurozone partners. I have to say I think the Greek PM is fully within his rights to say 'I want public support for carrying on with this path'. Because what's the truth about Greece? Unemployment is up, the economy's flatlined there too, they're not getting their deficits down either.
What the Greek government should be doing is agreeing a plan with the eurozone which will actually work and I'm afraid over the last couple of years we've seen tax rises and rising unemployment in Greece. It hasn't worked to boost confidence. If the prime minister says to the country 'Trust me, this will work', then I hope he gets support. But I'm not sure this is the right plan, it's not been working so far.
It appears no one in Germany saw George Papandreou's referendum bombshell coming. Helen Pidd, our Berlin correspondent, reports that the news was mostly ? but not exclusively ? greeted with dismay.
"This puts a question mark over the whole rescue package," said Commerzbank strategist Benjamin Schroeder in a briefing note. Folker Hellmeyer, chief analyst at the Bremer Landesbank called it "suicide".
In a piece for Zeit Online (in German), Gerd H?hler tries to unravel what prompted Papandreou's decision:
What's motivating Papandreou? Has he had enough of high office? Is he capitulating in the face of problems? Is he looking for an exit? Some commentators are already talking of Papandreou's 'political suicide'. You can't really interpret last night's announcement in any other way.
But what's worse: the Greek premier is plunging his country ? which for the last two years has been fighting to avoid bankruptcy - into a serious political crisis. Greece now faces months of uncertainty and insecurity: it takes time to organise a referendum. You need a new law, which has to be passed in parliament, That could take some time.
H?hler also points out that the Greek constitution "expressly forbids" referendum on financial issues. "Did Papandreou realise that?"
But writing on the Financial Times Deutschland website (in German), Sven Clausen sees things much more positively.
He thinks Papandreou is making an "intelligent" ? albeit "highly risky" - decision which could be "beneficial" to the eurozone. If the Greeks vote yes, writes Clausen, they will send "the strongest signal yet" that there is commitment to solve the crisis in spite of the pain it will cause:
It will give investors no good reason to worry about their money.
Better still: it will increase the chances that other indebted states, especially Italy, will finally allow a few capable politicians to sort out their budgets ? because they know that by doing so they can also win majorities.
The financial markets are hitting new lows for the day. The FTSE 100 hit 5355, down over 3.2% or 189 points. Traders in Germany are even more pessimistic, sending the DAX down 5%.
Italian ten-year bond yields are still worrying high at 6.24%. Clem Chambers, CEO of financial information site ADVFN.com, points out that:
With Italy and Spain on the brink the EFSF's new firepower is going to be tested sooner than later.
Spanish ten-year bond yields have also risen today, to 5.59%.
More political upheaval in Greece - a ruling party MP has quit George Papandreou's parliamentary group. Milena Apostolaki's defection cuts the government's majority to just 2 votes, with 152 of the 300 MPs still loyal.
This really is getting serious - Papandreou has called a vote of confidence for Friday night. Lose that, and the uncertainty over a mere referendum might look quite attractive.
The political situation in Greece is moving fast. Helena Smith has just spoken to insiders at New Democracy (the main opposition group run by Antonis Samaras), who say the party will meet tomorrow to discuss the referendum. With Samaras already demanding a general election, the gathering could be decisive in setting ND's next move.
Here's more from Helena:
With the popular vote not expected to take place before January at the earliest, critics say Greece faces a two-month period of being in limbo and economic uncertainty.
"Who will want to invest here? What bank will agree to sign the PSI* when it remains an open question as to whether Greece will even be in the EU in the future?" asked one ND official.
"The prime minister agreed to last week's bailout in Brussels. He returned in celebratory mood and told the people how good it was and now he throws the whole thing up in the air. It's madness pure and simple."
There is some speculation that President Papoulias may also scupper the referendum by refusing to sign a presidential decree that would allow it to take place.
* - The PSI, or Private Sector Involvement, is the mechanism by which banks take a haircut on their Greek debt.
At 2.30pm today, our economics editor Larry Elliott is holding a 90-minute question-and-answer session on the UK GDP data, which showed that the economy grew by 0.5% in the third quarter of 2011.
To get your questions into the queue, just click here.
Antonis Samaras, head of the New Democracy opposition party. Photograph: Louisa Gouliamaki/AFP/Getty Images Greece's opposition leader Antonis Samaras has just called on Greek prime minister George Papandreou to forget about a referendum on the euro debt deal, and instead call an immediate general election.
We flagged up at 8.59am that Samaras would be meeting with Greek president Papoulias this morning to discuss the crisis. Shortly after that meeting, the head of the New Democracy party said he was determined to prevent "opportunistic experiments" such as the referendum.
Helena Smith has full details on the latest political developments in Athens:
The prospect of Greece descending into further political and economic turmoil increased following crisis-talks between Papoulias and Samaras, the main opposition leader.
Emerging from the presidential palace after a 30-minute meeting, Samaras lambasted the government for calling a referendum that he said clearly "endangered" Greece's future in the EU.
"[We are faced] with a dilemma that is divisive and blackmailing in nature, that endangers our future and our future in Europe," the New Democracy party leader said. "New Democracy is determined to avert such opportunistic experiments at whatever cost and it will do it," he insisted without being drawn on how exactly the party would obstruct the referendum from taking place.
Samaras, who has vehemently opposed the belt-tightening medicine meted out to Greece by the EU and IMF, arguing that the conditions of the bailout should instead be renegotiated, repeated his call for the country to go to early elections.
The prospect of a Greek referendum has done down extremely badly in Germany.
Rainer Bruederle, the head of the Free Democratic Party (FDP) which shares power with Angela Merkel's Christian Democratic Union, spoke for many when he said he was "irritated" by the development. He told the Deutschlandfunk radio station that it was a "strange way" for Athens to act, and indicated that he was quite prepared to watch Greece to default.
One can only do one thing: prepare for the eventuality of a state insolvency in Greece and if it doesn't fulfil the agreements, then the point will have been reached where the money is turned off.
Bruederle also criticised the political leaders who have brought Greece to the present crisis:
The prime minister had (agreed) to a rescue package that benefited his country. Other countries are making considerable sacrifices for decades of mismanagement and poor leadership in Greece -- wrong decisions were made and the country manoeuvred itself into this crisis.
Photograph: Toby Melville/Reuters George Osborne has just welcomed the news that the UK economy grew by 0.5% in the last quarter (and the last year), and warned that the eurozone debt crisis is hampering the British recovery.
Speaking on TV news, the chancellor pointed out that growth beat City forecasts (a dangerous precedent?):
This is a positive step, the economy is growing. It is a better number today than many people were forecasting even this morning.
Of course the British economy has got this difficult journey. It is a journey made more difficult by the kinds of things you see for example today in the markets because of
the situation in the euro zone. But we are determined to finish this journey.We have to understand that this journey is the only route that will take us to prosperity and recovery.
Osborne also urged Greece to stand by the deal agreed in Brussels last week:
That's a very important part of [the] recovery, not just in the euro zone but for the whole world, including the United Kingdom.
The pound has fallen by over half a cent against the dollar in the last 20 minutes, to $1.593.
The trigger appears to be disappointing manufacturing data that was released just before the UK GDP number came out, showing that UK factory output shrank at its fastest pace in two years last month.
Elsewhere, the FTSE 100 has crawled back from its lowest point, now down 125 points at 5418 (a 2.2% decline).
City analyst Howard Archer, of IHS Global Insight, is encouraged that the UK grew by 0.5% in the last quarter, but warns that the country still faces stagnation over the next six months:
The bad news is that this performance overstates the underlying strength of the economy and this is likely to be as good as it gets for some time to come. Growth was clearly lifted in the third quarter by the making up of some activity lost to one-off distorting factors in the second quarter.
We expect the economy to essentially stagnate in the fourth quarter of 2011 and the first quarter of 2012, before slowly improving. We see GDP growth at 0.9% overall in 2011 and expect a similar outturn in 2012.
Britain's 0.5% growth on a quarter-on-quarter basis is slightly better than forecasts, with City analysts expecting 0.3% to 0.4% growth.
This includes a bounce-back from the second quarter of the year, when the Royal Wedding had pushed economic activity down. Q2 GDP came in at just 0.1%.
The ONS is holding a press briefing now. It says that there was "no evidence" that August's riots had damaged economic growth.
Today's data also means that the UK economy had grown by just 0.5% over the last year (following the 0.5% contraction in Q4 2010, and the 0.4% expansion in the first three months of 2011)
Breaking news, the UK economy grew by 0.5% in the third quarter of 2011, according to the Office for National Statistics.
Bond traders report that the European Central Bank is buying up Italian debt in the markets, in an effort to push down bond yields (see last post).
Not exactly great timing for Mario Draghi to take over as president of the ECB, after nearly six years as Governor of the Bank of Italy....
The crisis has pushed up the interest rates on Italian debt again this morning.
The yield on Italy's ten-year bonds has jumped by 0.133% to 6.23%, closer into the 'danger zone' where countries cannot borrow on reasonable terms from the financial markets. Greece, Portugal and Ireland all found that they had to seek a bailout after their yields hit the dreaded 7% mark.
Mike Riddell of M&G Investments pointed out that the spread between Italian debt and the German equivalent rose yesterday, despite heavy activity by the ECB's bond buying program, which apparently snaffled up around $5bn of peripheral sovereign debt.
About two thirds of these purchases were directed towards Italian government bonds, and Italy spreads still ballooned out to Euro era wides
Not great news.
Italy 5-year spreads hit record wides. Source: M&G Bondvigilantes Interestingly, UK 10-year bond yields have fallen this morning - down around 0.1% to 2.33%.
A quick reminder that the Office for National Statistics will release the first estimate of UK GDP for the third quarter of 2011 at 9.30am.
The latest monthly survey of the manufacturing sector will also be released at the same time.
It's quite a busy day for data. At 2pm GMT (10am Eastern time), the US ISM manufacturing stats for October are released, along with construction spending data for September.
The Greek government has confirmed that finance minister Evangelos Venizelos will be discharged from the hospital sometime today, after checking in with stomach pains.
Our Athens correspondent, Helena Smith, points out that other officials have also suffered health problems in recent months, as they grapple with the crisis.
Here's more from Helena:
The Greek debt crisis is not just costing Greeks their livelihood but also their health. The portly Venizelos is the latest senior government official to be rushed to hospital after working punishing hours under extreme pressure for months.
Prior to the ten-hour EU summit in Brussels last week, George Papandreou's senior economic adviser, George Glynos, who has played a seminal role in overseeing the new EU task force that has been dispatched to Greece, suffered a heart attack. George Zanias, Venizelos' chief policy strategist, was advised by doctors to remain in his room and not attend the EU summit workings after developing extremely high blood pressure.
Meanwhile, Greeks don't know whether to laugh or cry over the shock news that their country is now heading to a referendum. Politicians are girding for battle with possible tumultuous developments later today when Antonis Samaras, the main opposition conservative leader meets head of state Carolos Papoulias. Like party leaders across the board Samaras insists that the only way out of the crisis is early elections "when the people can really speak."
At this stage, we don't know exactly what question will be put to the Greek people. That could be crucial, pundits say..
If, as EU capitals are already suggesting, the popular vote becomes a vote on whether Greeks want to remain in the euro then it is likely that it will be approved. If it is framed in such a way that Greeks are asked whether they agree with the latest bailout for the country, and the painful austerity measures it engenders, then it will likely be rejected.
Many are hoping that at the end of the day the "silent majority" of Greeks -- those who want to see the country modernised and the economy regain competitiveness -- will rally so that the referendum is passed with a resounding 'yes.'
City analysts are warning this morning that the chances of Greece exiting the euro have increased sharply. If a referendum is held, and the public vote against the bailout plan, European leaders have little room to maneuver.
Gary Jenkins, head of fixed income research at Evolution Securities, called George Papandreou's move a "political gamble which adds further uncertainty to the European debt crisis".
Here's more from his daily research note:
The Prime Minister will be hoping for a vote in favour to strengthen his mandate, but if the Greek population votes against, it will leave the IMF and Greece's European partners in a very difficult situation and seriously increases the risk of an exit from the currency union.
Let's be fair, the EU hardly has a Plan A, so if that gets rejected there really isn't a Plan B to turn to with regard to Greece. They may be able to tweak the agreements here and there, but a whole scale new approach to the Greek problem is very unlikely.
It raises the prospect of a disorderly default and an exit from the EU.
The Athens stock market just opened for trading, and shares have taking quite a kicking.
The main index has slumped by 7%, with shareholders in Greek banks desperately trying to offload them. Eurobank has plunged by 21%, with National Bank of Greece and Alpha Bank both falling 16%. But the worst performer is Hellenic Postbank (TT), whose shares shed 25% of their value.
It'ss turning into a rout. The FTSE 100 is now down 150 points at 5392, a decline of 2.7%. Barclays and RBS are now bouncing around the minus 9% mark.
The oil price is also suffering, with the US crude oil price down around 2%, or 1.7 dollars per barrel, to $91.4. That (and the heavy losses in the mining sector) reflects fears that the European debt crisis could yet pull major world economies back into recession, and hit growth prospects in developing nations.
The euro has been falling steadily this morning, losing almost two cents against the dollar to a low of $1.3686.
Yesterday afternoon, just before George Papandreou proposed a referendum, one euro was worth $1.416.
Banking shares are leading the sell-off across Europe, with some stocks suffering double-digit losses.
In France, Socgen is down 13.6%, Credit Agricole is 10.8% lower, and BNP Paribas fell 10.2%. All three banks are heavily exposed to Greek debt.
Germany's Commerzbank is down 9.8%. And in Italy, trading in Unicredit has been suspended after its shares fell 8.25%.
UK banks aren't immune either, with Barclays off 6% to 183p, and Royal Bank of Scotland losing 5.5% to 22.8p (bad news for the British government, who owns most of RBS)
As feared, Europe's stock markets have fallen sharply at the start of business, as traders give their verdict on the threat of a Greek referendum.
The FTSE 100 has dropped 120 points to 5423, a decline of 2.2%. Miners and banking shares are suffering the most.
Other markets are also plastered with red electronic ink - the German DAX has plunged by 3.4% at the open, with the French CAC down nearly 2%.
In short, the verdict from the stock markets is that Europe's debt crisis remains a serious threat.
Greece's finance minister Evangelos Venizelos - who is also George Papandreou's deputy - has checked into a clinic having suffered stomach pains.
Here's the official statement from the finance ministry:
The Deputy Prime Minister and Finance Minister Evangelos Venizelos visited early this morning Athens's Central Clinic with abdominal pain, which has since improved.It is expected that he will remain in the clinic until late this afternoon.
Evangelos Venizelos (left) pictured with German economy minister Philipp R?sler last month. Photograph: Louisa Gouliamaki/AFP/Getty Images Since being appointed finance minister in June, 54-year old Venizelos has been engaged in seemingly non-stop, high-pressure, negotiations over the euro debt crisis.
As Reuters puts it:
Like many of their EU counterparts, Greek officials have worked punishing hours under enormous stress for months. The debt crisis has taken its toll not only on their country and the euro, but on their health.
Traders are braced for a sharp sell-off when trading begins at 8am. Will Hedden of IG Index says some "vicious pre-market calls" are flying around, with Germany's DAX tipped to tumble by 3%.
Looking at the future market now, the FTSE 100 index is expected to fall by over 100 points, which would wipe another chunk out of last week's relief rally.
Michael Hewson, market analyst at CMC Markets, has warned that the next few weeks are "likely to remain fraught with uncertainty":
While it may be the democratic thing to do given the loss of fiscal sovereignty to the troika until 2020, what happen if Greece votes "no", which is possible given how unpopular the bailout plan appears to be amongst Greece's voters?
The resulting fallout could well result in a complete meltdown of the European banking system and throw Europe into turmoil.
Morning all. Just when Europe appeared to have made progress over its sovereign debt crisis, it faces more uncertainty and confusion.
The cause? Greece's decision to propose a public referendum on the bailout deal agreed last week. As we reported last night, the move has stunned European leaders, who must have left Brussels feeling a sense of achievement.
City traders have already predicted fresh losses on the FTSE 100 today, on top of Monday's 158-point drop.
We'll also be tracking the latest developments at MF Global, the US brokerage firm which filed for bankruptcy protection on Monday after running up $6.3bn worth of exposure to European debt.
And in the UK, economists and politicians are eagerly awaiting the publication of UK GDP for the third-quarter of 2011. How well, or badly, did Britain's economy fare during the summer?
Source: http://www.guardian.co.uk/business/blog/2011/nov/01/european-debt-crisis-greece-referendum
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