Good morning and welcome to another day of rolling coverage of Europe's debt crisis.

It's our first eurozone live blog of 2012 (the City was closed yesterday). The early indications are that the FTSE 100 will jump by around 100 points when trading begins (catching up with solid gains on other European markets yesterday).

Plenty of economic statistics will be published this morning, and should show how the global economy is faring. That includes jobless data from Spain and Germany, and manufacturing data from the UK and America.

As usual we'll be tracking the latest developments across the eurozone crisis, with analysts predicting another turbulent year. We'd also like to hear your forecasts for 2012 -- how do you think the next 12 months will pan out?

Here's an agenda of the main economic releases due today:

• Spanish unemployment data - 8am GMT (9am CET)

• German unemployment data - 8.55am GMT (9.55am CET)

• UK manufacturing PMI data - 9.30am GMT

• US ISM data - 3pm GMT (10am EST)

• Federal Reserve minutes for December - 7pm GMT (2pm EST)

One piece of encouraging economic news has already been released today - showing that China's services sector returned to growth last month.



Here's more detail, from Reuters:

The official Purchasing Managers Index for non-manufacturing sectors rebounded strongly to 56.0 from 49.7 in November, the China Federation of Logistics and Purchasing (CFLP) said on Tuesday. Coupled with a slight expansion of PMI in the vast manufacturing sector in December, the index showed that the slowdown in the world's No.2 economy may be modest, even though pro-growth policies were still expected. "China's services sector has returned to an expansion mode," said CFLP Vice-President Cai Jin in a statement.

That follows encouraging data from China's powerful manufacturing sector, released on Monday, which showed that it also returned to growth last month. That was enough to send the copper price up more than 1% this morning, on optimism that the world economy was in better shape than feared.

Trading has begun in London, and the FTSE 100 has rung in 2012 by posting a triple-digit gain.

The blue-chip index jumped 110 points at the start of the session, hitting 5682, a rise of 1.9%. Mining stocks such as Xstrata and Rio Tinto are among the biggest risers, as the encouraging Chinese economic data reassures investors.

Other European markets are more muted, having posted strong gains yesterday (Germany's DAX rose by 3% on Monday, and is another 0.9% higher today)

It's one of those mornings where almost everything is up – gold has gained 1.5% to $1,590/oz.

The oil price is also higher (Brent crude just hit $109/barrel), but that is also being driven by rising tensions between the US and Iran (see more here: Iran currency plunges 10% as US strengthens sanctions).

Bad news for one of Europe's weaker economies - Spain's unemployment level has hit a new record high.

In a sign of the challenge facing the new Spanish government, the number of people registered as 'out of work' hit 4.42 million at the end of December. That's the highest level since they first started collecting the figures in 1996, and will push the unemployment rate further above 22%.

Spain's labour ministry blamed the country's weakening economy for the increase:



The figures for the number of registered unemployed for the month of December confirm the deterioration of the economic situation during the second half of the year.

This is the second blow to hit Spain in four days – last Friday, it was announced that the Spanish deficit for 2011 will be larger than the official target of 6% of GDP, and could hit 8%.

Mariano Rajoy's new administration also unveiled €8.9bn of spending cuts and €6bn of tax rises designed to cut the deficit – but the plan is unlikely to help with Spain's huge unemployment crisis.

Veteran investor Jim Rogers gave the euro a small boost this morning, by declaring that the single currency will probably rise in value in the next few months.

Rogers told CNBC that he expects the euro to rebound in the near term, despite the problems affecting continental Europe. As he put it:

I own the euro just because there are so many people bearish and so many shorts in the euro. I do suspect that the euro will survive, in one form or another.

This was enough to nudge the euro back over the $1.30 mark against the dollar.

Rogers (not a man short of an opinion or three) has also predicted that stock markets will struggle this year. Last week he told the Australia Financial News Network that:

I am short stocks around the world. I'm short American technology stocks, I'm short emerging market stocks, and I'm short European stocks.

Unemployment in Germany has just hit a new record low.

The number of people out of work in Germany fell by 22,000 in December to 2.888m, sending the seasonally adjusted jobless rate down to 6.8%. That, according to Reuters, is the lowest level since reunification.

This is in stark contrast to the situation in Spain – where the jobless level rose to a new record high this morning.

The data reflects the difference between the two economies. Spain contracted in the last three months of 2011 (according to the Bank of Spain last week) as its tourism and exports sectors weakened.

Germany has its own problems -- the Bundesbank expects growth of just 0.6% in 2012 following a tumble in exports in October -- but it remains the strongest of Europe's large economies.

The UK manufacturing sector just posted its worst quarterly performance since the recession officially ended – but there are also reasons to be optimistic.

PMI data published by Markit in the last few minutes showed that UK manufacturing output came in at 49.6 in December. That means that output fell slightly (the 50-point mark that separates expansion from contraction), but that's still an improvement on October and November's weak figures.

Encouragingly, exports orders rose in December for the first time since July – driven by increased demand for British foods from China, Germany and Eastern Europe, according to Markit.

For the last three months, though, the UK manufacturing sector posted its worst quarter since the second quarter of 2009. That is likely to drag UK GDP lower, warned Markit economist Rob Dobson.

James Knightley of ING said the UK manufacturing data released this morning (see last post) was better than feared, but warned that the UK still risks falling into recession in 2012.

Knightley explained that:

The details show strong export orders, but domestic orders remain soft while the backlog of work remains a worry. Meanwhile, the price component suggests that inflation pressures continue to moderate, which offers hope that the Bank of England can come in and offer more stimulus. Moreover, while today's headline figure is encouraging, it still suggests that manufacturing will drag GDP growth lower and that recession will remain difficult to avoid.

Howard Archer of IHS Global Insight agreed that British manufacturers will still struggle this year:

Despite being better than feared, the December manufacturing purchasing managers survey does little to dilute belief that the Bank of England will be pulling the Quantitative Easing trigger again early in 2012.

Pressure is building again today in Greece, the most troubled member of the eurozone.

Government spokesman Pantelis Kapsis warned this morning that Greece could be forced out of the eurozone unless it can agree the details of its second rescue package, worth €130bn. Kapsis told Skai TV that:

The bailout agreement needs to be signed otherwise we will be out of the markets, out of the euro...The situation will be much worse.

That €130bn package was agreed in principle last October, at an EU summit in Brussels. Nearly 10 weeks later, the Greek government still hasn't agreed its side of the deal – yet more austerity cutbacks, and a debt-swap deal with its creditors.

Kapsis warned that "The next three to fourth months are the most crucial."

The immediate priority is to hammer out a deal with Greece's debt-holders. The original plan was for a 50% haircut, but IMF officials are now indicating that this may not be enough to repair Greece's finances.

National Bank of Greece president Vassilis Rapanos has also warned that Greeks must either lower their standard of living, or quit the euro and turn the clock back by decades

Rapanos told an audience at the Athens Stock Exchange that the first quarter of 2012 will be decisive for the country, as he conducted the traditional cutting of the New Year cake.

Belgium just conducted the eurozone's first debt auction of 2012, and it should be pleased with the results.

The sale of short-term bonds saw solid demand, pushing down the yield (interest rate) demanded by buyers – a sign that investors were less nervous about buying Belgian debt.

Belgium sold €1.28bn of three-month bills (repayable in April) at an average yield of 0.264%, down from 0.78% at a similar auction last month. It also shifted €1.155bn of six month-bills at an average yield of 0.364%, down from (a remarkably high) 2.438% last time.

For Hungary, though, 2012 has not started well. It was forced to pay a yield of 7.67% on a sale of its own three-month bonds this morning, a sharp contrast to the lower borrowing costs enjoyed by Belgium (see 10.51am)

The situation in Hungary is looking increasingly serious. The country asked for a €15bn-€20bn credit line from the IMF in November, but negotiations stalled over controversial 'reforms' to its central bank. Public anger against Viktor Orban's government is growing, as illustrated by last night's protests in Budapest

As my colleague Helen Pidd wrote:

The country's finances are in such a poor state that just before Christmas the ratings agencies Moody's and S&P downgraded Hungary's debt to junk category. At a government securities auction last week, just 50% of a total offer of €100m were sold at extremely high yields, suggesting that investors had lost faith.

Here's an alarming statistic – $7.6 trillion of debt issued by the world's largest economies will mature this year, putting a major strain on the financial markets.

Country 2012 Bond/Bill Redemptions ($) Coupon Payments Japan 3,000 billion 117 billion US 3,000 billion 212 billion Italy 428 billion 72 billion France 367 billion 54 billion Germany 285 billion 45 billion Canada 221 billion 14 billion Brazil 169 billion 31 billion UK 165 billion 67 billion China 121 billion 41 billion India 57 billion 39 billion Russia 13 billion 9 billion

Bloomberg has crunched the numbers and worked out the amount of debt that the G7 nations plus Brazil, Russia, India and China must refinance in the next 12 months. It's an increase on the $7.4 trillion that matured during 2011.

As Bloomberg points out, many of these countries face higher borrowing costs than a year ago – making it more expensive to roll the debt over (by issuing new securities to pay off debt as they mature).

The table on the left shows which countries owe the most (redemptions = total debt that matures in 2012; coupon payments = interest payments on the national debt).

A quick update from the financial markets, where the FTSE 100 has clung on to most of its early gains – and the Dax has been boosted by today's drop in German unemployment.

FTSE 100: +69 points or 1.25%, at 5641

Dax: +63 points, or 1%, at 6138

CAC: -14 points, or 0.46%, at 3207.

The euro has risen to $1.3041 against the US dollar, and 83.54p versus the pound.

On a lighter note, and with luncheon looming, we must flag up this new theory explaining the course of the financial crisis – the death of the long City lunch.

Journalist and author Bryan Appleyard argues today that London's financial heartland was a safer place in the hazy days when bankers, traders and hacks would gather for a convivial breaking of bread and popping of corks.

As Appleyard (a former financial news editor explains):

Amidst all the revelry, there was a certain mannered reticence. Work was everybody's subject matter , but it seemed to go on in the background. Once, while supposedly covering accountancy, I lunched with some very senior City figures and the subject never once came up; instead, we discussed life, literature, railways, philosophy, anything but accountancy. Everybody seemed to have quietly agreed that money itself was important but boring. What money did was interesting, as was life, literature etc, but the tedious shuffling of paper was nothing.

Alas, this gentle world withered when the Big Bang ushered in an era of "computers, pesto chicken sandwiches at the desk and fraudulent algorithms"....

...not forgetting "hyper-professionalism, the glorification of misguided expertise and a City-wide determination to undermine the principles of the free market".

In conclusion, Appleyard argues:

A long lunch meant you were doing harm to nobody but yourself; it meant you weren't spending your time thinking of new and ingenious ways of shuffling paper which is now all that the City really does. So save the euro, save Greece, create jobs, go to lunch and don't come back until four at the earliest.

You have your orders....

Today's drop in German unemployment to a post-reunification low has been welcomed by the country's politicians, and prompted several analysts to explain why the Germany economy is faring so well.

Politics first. Economy minister Philipp Roesler proudly declared that 2011 has been "the most successful since German unification for working people." He continued that:

Demand for labour remains very high, despite the current economic risks. Overall, the upturn in employment should continue, albeit at a slower rate. The labour market remains one of the main pillars of our economy.

But why didn't the escalating eurozone crisis, and fears of a global downturn, push up unemployment in Germany?

Andreas Rees, chief German economist at UniCredit, argues that mild conditions in December helped the construction sector. In addition, firms have plenty of orders to fill, as Rees explained:

Companies are still sitting on a huge pile of backlog orders, thereby keeping the labour market going.

Timo Klein of IHS Global Insight agrees that the weather was a factor:

Milder-than-usual winter conditions probably helped December data additionally, so that it should still be expected that the economic slowdown observed since about mid-2011 will be reflected in less benign numbers during 2012.

Eckart Tuchtfeld of Commerzbank reckons that German firms are still confident enough about economic prospects to keep hiring this year.

Thanks to all of you who have offered predictions for the eurocrisis, and the wider financial world, in 2012.

AussieAnalyst provided the most comprehensive list of forecasts. They include:

• The pound and the euro both declining in value against a basket of world

• currencies, with the euro hearing close to parity with the US dollar,

• More quantitative easing in the UK and US, and recessions in both the UK and the eurozone.

• One or more EZ nations may introduce a dual-currency system (the euro and reinstatement of the old currency) primarily for domestic reasons

That last point is queried by another regular reader/poster, BankingIsMyDayJob, who argues it would be economic suicide, because:

A 'dual currency system' would effectively mean keeping EUR liabilities while probably receiving income in their duff old currency.



AA's full list is here - I will be bookmarking it ready for January 2013.....

Dr Jazz reckoned that the London stock market will bob around its current level this year:

• 5500 for the entire year, with dips for wars and ups when they cease..

[Personally, the City predictions I've seen have fallen into one of two camps "Optimistic - back over 6,000", and "Confused - unwilling to guess"]

Driffielddave reckons we're in for a stinker of a year (unless you're the boss of Barclays):

Greece and Ireland default. Banks go bankrupt. CDS live up to their name of "weapons of financial mass destruction", and take most of the City with them. The UK taxpayer is asked to bail out Barclays, but declines. Bob Diamond retires to the Maldives.

Epinoa reckons 2012 will end with trouble in the Far East, specifically:

• The bursting of the Chinese property bubble in the 4th quarter.

And finally, LancerRed reckons German dominance will continue on other fields:

And to make things worse for you, Germany will probably win Euro 2012 too :P

We'll see about that!

Time for a lunchtime round-up:

• German unemployment has hit a record low. Despite the eurozone crisis, the jobless rate in Europe's largest economy hit its lowst point since reunification. Politicians hailed the data as proof that 2011 was a vintage year for German workers.

• Spain's economy continues to weaken, though. Spanish unemployment rose in December to a record high, pushing its unemployment rate over 22%.

• Greece's future in the euro was questioned again. Government spokesman warned that the country might have to quit the single currency unless it agrees the terms of a second bailout soon.

• Hungary's borrowing costs jumped again. Interest rate on short-term bonds rose as Budapest's political crisis deepened. Belgium, though, saw its borrowing costs fall.

On that note, I'm taking Bryan Appleyard's advice and heading off to lunch. Thanks for your time and company this morning, and for the excellent predictions (a few examples here, more in the comments).

Jill Treanor has the controls....

The analysis by Bloomberg that Graeme referred to earlier has also sparked the interest of Louise Cooper, markets analyst at BGC Partners. She writes

In my opinion, despite imposed austerity, (or because of it) the amount that governments need to raise will become significantly larger as the year progresses. Experience teaches us that once government finances start to deteriorate, they do so with alarming speed, which economists and politicians always tend to significantly under estimate.

BCG's Louise Cooper points out that Spain has already admitted its debt is worse than expected while Ireland's finances are also deteriorating.



Why do government finances deteriorate so rapidly? First with slower growth, comes the double whammy of less taxation revenue in and more spending out, which means government debt is highly sensitive to economic growth (and forecasts for growth for 2012 have been downgraded a lot in the last couple of months). Add to this, higher interest charges when markets lose confidence in a country which can prove very expensive. In difficult times, forecasts can prove wildly optimistic and numbers start looking ugly really quickly.

To just continue with Louise Cooper for a moment, she also points out that banks have "massive funding needs" during 2012 - some $665bn of debt comes due in the first half of the year.

Once the issuance from banks starts, there will be massive scrutiny of each bond, its terms, and how the deal went. Banks have massive funding needs, and how they finance themselves will be a key question for 2012. Even with the ECB accepting low quality collateral on its loans and offering three year money, interbank markets are still frozen with fear prevalent.

Data from the European Central Bank earlier on Tuesday showed that banks reduced their use of one week funding by €15bn. Even so, 138 banks borrowed €130bn for seven days. But, the reduction in the need for short-term money need not be sign that the tensions are easing as the ECB has recently started lending to banks for three years.

So, Wall Street has opened. The Dow Jones index is up almost 1% at the open - some 114 points to 12,332.

In London, the FTSE 100 is up 1.6% - or 90 points - at 5,663.

Turning to the ratings agencies, when Standard & Poor's put almost the entire eurozone on review for a possible downgrade in December, the markets had expected France to be stripped of its Triple A debt rating even before Christmas. Well the festive season has ended and 2012 has got underway, and France is still Triple A rated. A government official has started the new year by telling the Wall Street Journal that the country has not been notified of change to the crucial rating - which might indicate that the ratings are still under review.

Here is the original Guardian story on the threat of the ratings downgrade to 15 of the 17 countries in the eurozone.

Stronger than expected economic data out of the US has helped the FTSE 100 put on 100 points to trade 1.8% higher at 5,674. In November, US construction spending was the highest since June 2010 at $807bn and private construction spending at $522bn was at its highest since December 2009.

The Dow Jones index is up more than 2%, after earlier being bolstered by better than expected economic news out of China and Germany. The 1.2% rise in constuction spending in November, in the US, compares with expectations for 0.5%.

Reaction to the US data - not only construction spending but also the ISM manufacturing index which rose to 53.9 in December from 52.7 in November - is coming in.

Paul Dales, senior US economist at Capital Economics, writes

The rise in the ISM index to a six-month high means it has now reversed almost all of the fall to 50.6 seen last summer...At face value, it is already consistent with annualised GDP growth of between 2.5% and 3%. This sits comfortably with other data suggesting that the economy is gaining traction. Despite the downward revision to the rise in construction spending in October (now -0.2% m/m versus +0.8% previously), the 1.2% m/m gain in November suggests that residential investment rose in the fourth quarter as a whole. And data released just before the turn of the year showed that even consumers have become a little more upbeat. We are expecting annualised GDP growth in the fourth-quarter of around 2.5%, up from 1.8% in the third. That all said, it is hard to see the US economy strengthening this year when the euro-zone is on the cusp of a potentially severe recession and when growth in Asia is set to slow. As such, 2012 will be another challenging year for the US economy, perhaps resulting in GDP growth of no more than 1.5%.

The UK's debt management office has just announced it will sell £3.7bn of government bonds, known as gilts, on January 10 and January 11. Some £700m of these will be index-linked.

It is also worth pointing out that Europe's bailout fund - the European Financial Stability Fund- is also planning to issue bonds too. It plans to issue €3bn of three year bonds and is reliant on the top notch ratings of the main players in the eurozone - France, as mentioned earlier, and Germany, for instance - for its own Triple A rating. It too has been warned it could be stripped of its crucial rating. The EFSF said it would be it first three year bond and that it would completes issuances on the short term by the EFSF's recently-launched bill programme and the 5- and 10-year benchmark issues placed last year.

While France has been denying it that any downgrade of its rating by S&P is imminent, rival ratings agency Fitch has been analysing Spain's banks. Fitch has concluded the outlook is negative for the major Spanish banks and also revised down its forecasts for economic growth in 2012 and 2013 to 0.0% and 1.0%, respectively, revised down from 0.5% and 1.5%.

Maria Jose Lockerbie, managing director in Fitch's financial institutions group, said



A further intensification of the eurozone crisis, a deteriorating macro environment within Spain and across Europe, increased market volatility and risk aversion, could negatively affect bank credit profiles

Fitch points out that the non-performing loans (NPL) ratio for the entire sector stood at 7.2% at end-September 2011 and that for commercial property and other real estate was around 18%. However, the NPL ratio for residential mortgages was 2.4% at end-June 2011 and is not expected to worsen significantly - despite the high level of Spanish employment.

The ECB has also named the successor to Jürgen Stark, the chief economist whose resignation in September sparked all manner of conspiracy theories. He is to replaced by Peter Praet, a Belgian who has been a board member of the ECB since June 2011.

London's first trading day of the year has ended and the FTSE has found an upbeat tone, ending more than 2% up on the day at 5699, a gain of 127 points. Stock markets across the eurozone are also higher. Spain has scraped into positive terrority, rising 0.2%, while Portugal is up 1.7% and Italy 1.2%. The stock markets in German and France are up 1.5% and 0.7% respectively.

The tone for early trading was set by economic news out China, which was then reinforced by fresh signs that the US economy ended 2011 on a more positive note.

European stock markets have closed at their highest levels for five months. Better than expected economic data out of the US and China appears to have set the most positive tone, although there have been other events today too.

• The European Central Bank lent €14.8bn in emergency funding to major banks. Another number of interest is the $7.6tn of debt issued by major governments around the world that matures in 2012 - and will likely need to be refinanced

• Spain's economic outlook is deteriorating. Unemployment levels are at record levels and stands at 22%.

• Greece is warning it will have to leave the euro if an agreement cannot be reached on its bailout.

• Yet, in Germany, unemployment is at its lowest level since reunification.

That's it for Tuesday. We will back with more eurozone developments on Wednesday.