It's been another mixed day on the markets, with rumour and counter rumour ahead of the EU summit on Thursday and Friday.

A downgrade of 28 Spanish banks and talk of the country's sovereign debt getting another cut by Moody's helped push Spanish yields higher again, although still below the 7% level reached last week. Stock markets came off their worst levels despite some reported resistance to the EU's draft federal plan to save the euro.

The FTSE 100 closed down 3.69 points at 5446.96, while Germany's Dax was up 0.07%. France's Cac slipped 0.3% but Italy's FTSE MIB fell 1.11% and Spain's Ibex 1.44% after German chancellor Angela Merkel supposedly said Europe would not have shared total liability for debt as long as she lives.

Eurozone finance ministers are expected to hold a conference call tomorrow to discuss Spain and Cyprus's requests for financial help, and there will inevitably be a lot more posturing ahead of the summit.

So with that to look forward too, it's time to close up for the night. Thanks for all the comments and we'll be back tomorrow.

News from John Hooper in Rome to calm everyone's nerves as the summit approaches ...

As the Guardian reported a couple of days ago Silvio Berlusconi has been making noises about returning to government. Well, today he was reported to have added some clarification. The 75 year-old TV magnate was said to have told a meeting of his party's MPs that he didn't necessarily see himself as the next prime minister. But he would be happy to serve in a future government as finance minister ...

More on the resignation of deputy maritime affairs minister Giorgos Vernikos. Helena Smith in Athens writes:



It's definitely NOT a good day for Antonis Samaras, who though at this early stage of his Greek premiership could be described as beleageured. After accepting the resignation of Vasillis Rapanos, his first choice for finance minister, the conservative leader has been forced to accept the resignation of Giorgos Vernikos, the deputy maritime minister. Greece's state-run news channel ERT is reporting that Vernikos announced the decision to step down following relevations - made initially by the main opposition far left Syriza party - of his ties with an offshore company in the Marshall isles. Under Greek law such ties are prohibited and in the new climate of post crisis Greece it would seem are being upheld.

Aside from the various Merkel and Monti comments ahead of the EU summit - which seem to follow the pattern of being made and then downplayed - there is a more positive tale doing the rounds.

According to Reuters and Bloomberg German sources are suggesting that the rules surrounding the forthcoming ESM bailout fund could be changed, allowing it to direct aid directly to national bank rescue funds. On top of that, the eurozone is apparently considering taking away preferred creditor status from the ESM.

That last point is important. One reason investors have been less than enthusiastic about, say, the Spanish bank bailout is that if the funds come from the ESM, they would rank higher than existing sovereign debt. That has helped push Spanish yields up and the price of its bonds down, since why would anyone invest if existing bonds rank lower in the pecking order.

A change to that seniority could prove a positive point for the markets, the euro and sovereign debt.

The Italian press are reporting that prime minister Mario Monti has threatened to quit unless eurobonds are introduced [report in Italian]. Germany's Angela Merkel is of course dead set against eurobonds...(see the reported comments on shared liability at 4.13).

Earlier Monti told the Italian parliament that the forthcoming summit would not just rubber stamp pre-prepared documents, but needed to work towards a growth plan and "mechanisms to help control market tensions."

But now comes the backtracking.

Seems partial denial over the Merkel comments... allegedly was off the cuff at 'private meeting' — Steve Collins (@TradeDesk_Steve) June 26, 2012

Markets are getting spooked again, and here's one reason. According to Reuters, German chancellor Angela Merkely has said at a coalition party meeting that Europe will not have shared total liability for debt as long as she lives.

So is this a torpedo aimed at the earlier EU draft talking about turning the eurozone into a fully fledged political union within a decade?

Whether or not this is the case, the Spanish and Italian stock markets don't like it - they are both down more than 1% now.

But don't worry. The eurozone finance ministers are apparently due to hold another teleconference tomorrow ahead of the summit on Thursday and Friday. So that's all right then.

Some nasty rumours about Spain, notably that Moody's may soon cut the country's credit rating to junk after last week's downgrade.

As a reminder, Moody's said when it cut the rating to Baa3 that the country was on review for another reduction. The agency has just reduced the ratings of 28 Spanish banks, and the cost of insurance against a default among Spain's biggest banks is currently climbing again. A Bloomberg story quotes one analysts saying there was likely to be another downgrade of Spain's sovereign debt within weeks.

All this - along with high yields Spain paid in its short dated bond auction today - has had a predictable effect on ten year yields. Michael Hewson at CMC Markets said:

Spain had to pay 2.36% for three month money, well above the previous 0.85% in May. Italy's borrowing costs also rose at a two year auction today paying 4.71%, above the previous 4.04%. Whispers in the market that Spain could well be cut to "junk" by Moody's have seen Spanish yields once again edge back towards the 7% level, pushing above 6.8% again.

Being the world's oldest bank and the producer of your own Chianti is no protection against the current financial crisis.

Italy's Banca Monte dei Paschi, founded in 1472, is to receive a €2bn state bailout in the form of special bonds, to help plug a capital gap of between €1.3bn and €1.7bn. The new support brings the total level of state aid for the bank to €3.9bn. Here's a Reuters piece looking at how such an institution ran into its present difficulties.

Meanwhile here's a bit more about one Greek minister who must be expected to stay around for at least a little while, given he has only just been appointed.

According to our Athens correspondent Helena Smith, the new finance minister Yiannis Stournaras has strong views on liberalising the closed shop Greek economy. Helena says:



In many ways Stournaras is a replica of Vasillis Rapanos, who was forced to quit the job and may well have recommended the Oxford-educated Stournaras in his stead. A strong believer in reform, Stournaras is of the firm conviction that Greece's myriad closed shop professions must be opened up immediately, along with the market, if the debt-choked country is to regain its competitiveness. "He has very strong opinions on the need for reform and opening up the market," said Pandelis Kapsis, a prominent political commentator and former government spokesman. "In many ways he has exactly the same profile as Rapanos, both were top economic advisers to [former prime minister Costas Simitis] both headed banks, although in Stournaras' case it was the commercial Emporiki Bank, were are university professors. In short both are excellent choices for the post."

And an interesting fact:

#Greece's new finance minister, Yannis Stournaras, was part of the economic team that planned Greece's #euro entry ekathimerini.com/4dcgi/_w_artic… — Nick Malkoutzis (@NickMalkoutzis) June 26, 2012

The disruption of Greece's new government continues, if current suggestions are true:

#Greece2012 There are rumours that dep Maritime Affairs Min Vernikos has resigned TR @CapitalBrk — Efthimia Efthimiou (@EfiEfthimiou) June 26, 2012

Yet more weak data from the US, on both the manufacturing and confidence front.

The Richmond Fed manufacturing index fell by 3 points in June compared to a 4 point rise in May. On top of that US consumer confidence fell for the fourth month in a row, down to 62 from 64.4 in the previous month. Analysts had expected the index to come in at around 63.5. Rob Carnell at ING Bank said:

US Consumer confidence has come in much weaker than consensus estimates. Together with a more downbeat Richmond Fed index, today's data adds to the sense that the current run of soft US data is not just a temporary aberration, but something a bit more material. Not good news for risk assets.

Last week investors were betting that signs of weakness could prompt the US Federal Reserve to take aggressive measures to boost the world's largest economy, up to and including further quantitative easing. In the event, the Fed merely increased its bond buying programme. But it left the way clear for further action if things deteriorated, and today's data is certainly not showing any signs of improvement.

The news has done little to help the US market, with the Dow Jones industrial average currently down nearly 10 points.

It looks like Herman Van Rompuy, president of the European Council, significantly watered down plans to re-shape the Eurozone. The 7-page draft document released by the EC earlier today is significantly less ambitious than a 10-page version leaked to some media earlier this week.

The FT(£) says:

Herman Van Rompuy, president of the European Council, on Tuesday published a significantly scaled-back version of the highly anticipated plan for the future of the eurozone to be debated at a summit meeting this week.

The seven-page plan, which calls for progress towards commonly issued eurozone bonds and the eventual establishment of central EU treasury, is less ambitious and less detailed than earlier drafts, including a 10-page version circulated as recently as Monday.

That proposed giving EU institutions the power to rewrite national budgets and urged eurozone leaders to use their €500bn rescue fund to recapitalise European banks.

While earlier drafts of the report also contained detailed short-term measures that could be taken to address the current market upheaval, the draft published by Mr Van Rompuy on the website of the European Council contains far fewer details and suggests no timetable for implementation.

And with that, I'll hand over to my colleague Nick Fletcher.

Finally we know who will be representing Greece at the Eu Summit on Thursday and Friday.

Greek Foreign Minister Avramopoulos Says Will Go To EU Summit — Steve Collins (@TradeDesk_Steve) June 26, 2012

A much better profile by Reuters reveals that Stournaras, who was part of a team that negotiated Greece's entry to the euro, has been dubbed "Mr Euro" in Greece.

Greece's new conservative-led government scrambled to make a quick decision on the post after their first choice, banker Vassilis Rapanos, quit on Monday on the advice of doctors after spending four days in hospital suffering dizziness and abdominal pains. His sudden resignation threw the government into confusion at a time when it faces the daunting task of trying to persuade sceptical international lenders to ease the harsh terms of a bailout that has enraged the population. "Prime Minister Antonis Samaras has decided to name Athens University economics professor ... Yannis Stournaras as finance minister," Samaras's office said in a statement. Party officials said the three Greek coalition leaders had quickly agreed on Samaras's choice of Stournaras, 55, who is nicknamed "Mr Euro" in Greece.

Athens News has done a profile of Yannis Stournaras. It's not hugely revelatory, but it does remind us that 55-year-old economist has written for the Guardian.

The Greek government has put out a statement on its new finance minister:

Prime Minister Antonis Samaras has decided to name Athens University economics professor and Director of (economic think-tank) IOBE Yannis Stournaras as Finance Minister.

Stournaras replaces Vassilis Rapanos, who resigned yesterday due to ill health less than a week after being appointed to the post.

Bloomberg's Linda Yueh has tweeted the new Greek finance minister's name:

New Greek Finance Minister is Yannis Stournaras: PM's office — Linda Yueh (@lindayueh) June 26, 2012

Stournaras is an economics professor at Athens University and director of the economic thinktank IOBE.

More from Mervyn King.

In the last six weeks... I am very struck by how much has changed since we produced our May Inflation Report. I am pessimistic [about the eurozone outlook]. I am particularly concerned because over two years now we have seen the situation in the euro area get worse and the problem being pushed down the road.

Journalist at Barroso press conference asks how easily negotiations will proceed with new Greek government "When they are out of hospital" — Lorcan Roche Kelly (@LorcanRK) June 26, 2012

More details from European Commission President José Manuel Barroso's press conference in Brussels.

Some news in from Greece where our correspondent Helena Smith says while the quest for a new finance minister is ongoing, officials are promising that the holder of the post will be named today.

In the wake of the resignation of Vasillis Rapanos, it's all steam ahead to find a new finance minister and, say, officials "as soon as possible." Highlighting the urgency of the need for a replacement, prime minister Antonis Samaras, though still recovering from an emergency eye operation himself, met with senior aides at his home until late into the night to discuss the matter.

As head of a three party coalition whose junior partners are from the left, the conservative leader is keen to appoint a non-political figure to the post – the most crucial position in the Greek cabinet. "We will have a new finance minister," the government spokesman Simos Kedikoglou said this morning adding that he expected his name (no women are being considered) to be announced "within the day."

On the merry-go-round that is the great Athens rumour mill, the hum is that the new finance minister will be a banker or an economics professor who, like Rapanos, is well-briefed on the parlous state of the debt-choked country's public finances. One name being considered is the Oxford-trained economist Yiannis Sournaras a choice that is known to be supported by the socialist Pasok party.

The minister is likely to be announced after a meeting that will take place at Samaras' home at 7:30 PM Greek time between the prime minister and the leaders of his administration's junior partners.

Rapanos, who has long suffered from frail health and is believed to have told Samaras of his intention to step down shortly after his fainting fit last Friday, may well stay on to give behind the scenes advice. The former head of the National Bank of Greece, who was released from the hospital in the last hour, will go down as the first minister to resign before even formally being sworn in. Although government officials are putting on a brave face, it is clear the high drama has cast a shadow over the new administration in the run up to Thursday's critical EU summit.

Samaras' inability to return to active duty has meant that the coalition, which controls 179 seats in the 300-member Greek parliament, will face further delays before it receives a vote of confidence after a parliamentary debate on its policy program as Greece's constitution dictates.

The unexpected set-backs have meant that a visit by the inspectors from Athens' troika of creditors at the EU, ECB and IMF has also been put on hold. Without their assessment of the state of Greek finances, EU mandarins have said it will be impossible to decide what the next steps will be in the Greek debt drama – and whether Athens should be given its next injection of cash or not.

Following weeks of political uncertainty in the wake of the country's inconclusive election in May, reforms are "way off target" EU policymakers say.

After much to do, it has finally been decided that the country's head of state president Carolos Papoulias will attend the forthcoming summit in place of Samaras who is under strict doctors' orders to restrict his movement until next Monday at the earliest.

The Spanish bank bailout will spark a firesale of the state's stakes in the nation's top businesses, according to this nice story from Reuters.

[It will end] a cosy culture of corporate-banking links and prompting a wider shake-up in ownership of the company landscape.

Spain formally requested euro zone rescue loans to recapitalise debt-laden former savings banks on Monday, but those who receive funds will be subject to European Union state-aid rules that include selling equity assets.

With the price of such assets languishing as the euro zone's financial crisis drags on, that will involve the likely fire sale of big chunks of Spain's corporate titans, including telecoms leader Telefonica, oil major Repsol and power firm Iberdrola.

UBS estimates 22 billion euros ($28 billion) of Spanish stakes could be up for sale, most of which is in the hands of savings banks. This represents as much as 9 percent of the capitalisation of the country's blue-chip index.

BoE's King says we're not halfway through the crisis #gbp - oh happy days! — Michael Hewson (@michaelhewson) June 26, 2012

...

#Spain cash balance falls to €44bn in April vs €54bn in March: Treasury publishes data on cash balance held at central bank — Linda Yueh (@lindayueh) June 26, 2012

...

The results of Italy's bond auction are also in. Two-year paper sold at 4.712% - the highest since December.

Mervyn King has started speaking in front of the Treasury Select Committee. Heare are some key quotes. My colleague Phillip Inman will have a full story up shortly.

Monetary policy still does work by injecting more money into the economy [British banks have] all been pre-positioning large amounts of collateral under the discount window facility and we welcome that. There is nothing in principle against cutting bank rate further if that turns out to be necessary.

Some expert comment on the dire public sector finances from Olann Kerrison, head of product management at the foreign exchange specialists Moneycorp:

Plan A, it would appear, is kaput. The spike in public sector borrowing, to £17.9bn in May, is a body blow to the Chancellor and the coalition government's handling of the economy.

There is often a dip in tax revenues in May, following the end of the tax year, but this doesn't hide the fact that borrowing is significantly higher than in May 2011 when it was just £15.2bn.

The simple fact of the matter is that tax revenues are down — and borrowing up — because the economy is weak. Unfortunately, there is every chance the economy will weaken further in the months ahead as the Eurozone unravels.

Domestic demand is weak, and so is demand from overseas, especially from the Eurozone. This is decimating tax revenues and forcing the Government to borrow more.

The Labour spin machine will be all over these numbers, reiterating that austerity doesn't work.

Ian Traynor has written a full story on the European leaders radical plan to reshape the eurozone.



[They] plan to turn the 17 countries of the eurozone into a full-fledged political federation within a decade in an attempt to placate the financial markets by demonstrating a political will to save the single currency in the medium-term.

The incendiary proposals for a banking, fiscal, and economic unions resulting in a "political union" are to be debated at an EU summit on Thursday and Friday. Following two bad-tempered meetings of European leaders in Mexico and Rome over the past week, the Brussels summit looks likely to see major clashes over the future of Europe as well as the immediate crisis surrounding sovereign debt, bad banks, and the euro's survival.

You can read the whole of the report here.

The results of Spain's bond auction are out. Spain sold €3.0bn of short-term debt - but it came at price: the highest rates since November.

The yield on 3-month bonds was 2.362%, up massively from 0.846% last month. Six months bonds sold on a yield of 3.237% up from 1.737%.

The ONS said public sector debt as a percentage of GDP (excluding financial interventions) now stands at 65% - the third highest on record.

UK public borrowing figures for May are much higher than expected. The ONS said public sector net borrowing (excluding public sector interventions) came in at £17.9bn compared to £15.2bn last year.

More details are coming through about the meeting between finance ministers of Germany, France, Italy and Spain in Paris later today.

"We want to work with Germany," Moscovici told France Info radio, asked about the pressure on President Francois Hollande and German Chancellor Angela Merkel to reach an agreement on ways to curb the spiralling eurozone crisis.

"Tomorrow there is a meeting, which will be very important, between Francois Hollande and Angela Merkel and this evening I will receive the finance ministers: Mr. Schaeuble from Germany, Mr. Monti or Mr. Grilli of Italy and Mr. de Guindos of Spain along with the European Commissioner," Moscovici said.

"We are in an active phase of preparation of this summit."

Hollande wants measures like mutualised debt and joint bank deposit guarantees to be worked on at the same time as moves towards deeper fiscal integration, while Merkel, wants an accord on closer integration before any other steps are taken.

We've got quite a busy day ahead of us, here's a selection of the key events (all times are BST):

• 9:30am: Spanish and Italian bond auctions.

• 9:30am: Spain's finance minister is up before parliament to explain the bailout.

• 9:30am: Public sector net borrowing figures for May are expected to have reached £16-16.5bn, compared with £15bn in May last year.

• 10:00am: Mervyn King is speaking in front of a Treasury select committee.

• Unspecified time: The finance ministers of Germany, France, Spain and Italy are meeting in advance of the EU summit on Thursday and Friday.

...

Caretaker Development Minister Yiannis Stournaras is being pegged as most likely finance chief #greece — Kathimerini English(@ekathimerini) June 26, 2012

The Greek English language paper Kathimerini reckons it knows who's going to replace Vassilis Rapanos as finance minister.

Let's hope the new guy lasts longer than Rapanos, who resigned yesterday due to ill health less than a week after being appointed to the post.

The Guardian's Europe editor, Ian Traynor, has got hold of a copy of the gang of four's master plan for the future of Europe and the Euro.

Ian says the seven-page document from the four presidents - Herman Van Rompuy of the European Council, Mario Draghi of ECB, Jose Manuel Barroso of the European commission, and Jean-Claude Juncker of 17-country Eurogroup - details a 10-year plan based on 4 "building blocks" - banking union, fiscal union, economic union, political union.

Ian's writing up a full story now, but in the meantime, he's posted the key points on Twitter.

The BBC's Gavin Hewitt reckons the finance ministers of the power players - Germany, Spain, Italy and France - are going to get down to business a couple of days early.

As all eyes turn towards the Europe Union summit on Thursday and Friday, the FT claims to have seen a draft report which could give the EU sweeping powers to rewrite national budgets for eurozone countries that breach debt and deficit rules.

The proposals are part of an ambitious plan to turn the eurozone into a closer fiscal union, giving Brussels more powers to serve like a finance ministry for all 17 members of the currency union. They are contained in a report to be presented at the summit, which will also outline plans for a banking union and political union.

Read the full FT story here (£)

Good morning and welcome back to our coverage of another day of high drama in Europe.

Last night Moody's hit Spain, again. This time the rating agency downgraded 28 of the country's banks. Moody's latest salvo came just hours after the Spanish government finally formally asked for help from its European neighbours in cleaning up its stricken banking sector. It hasn't said how much dosh it wants, but did stress that stressed that the €62bn top figure provided last week by two independent auditors of Spain's banking system would cover against a severe downturn in the next three years – suggesting their request may not go much higher than that.

The world is also still reeling from the news that Cyprus has joined the unhappy club to ask for a bailout. To recap, that's Greece, Ireland, Portugal, Spain and Cyprus - quite the Club Med special. Who's going to be next, do you reckon?