News in from Greece where our correspondent Helena Smith says the crisis-hit country's new coalition government is being sworn in.



The swearing in ceremony has just begun with the country's spiritual leader Archbishop Ieronymos and attendant priests singing in front of the 38-strong cabinet gathered before them. Antonis Samaras, the conservative New Democracy leader who was appointed prime minister on Wednesday - Greece's fourth since last November -- is watching over the ceremony as it unfolds at the presidential palace. The archbishop has just wished the cabinet " health, courage and strength" to face the tasks before it. The government - supported by New Democracy, the socialist Pasok party and the small Democratic Left -- faces a country on the verge of economic collapse as it endures its worst crisis in modern times.



Elsewhere Italy's treasury minister has reportedly said the country will miss its 2012 deficit target by €4bn and more spending cuts are needed. Not good.

And on that note, it's time to close up for the evening. Join us tomorrow for what is likely to be another busy day, and as always, thanks for all the comments.

The Spanish bank's capital requirements may be less than feared, but the news seems to have unsettled the US markets. Dominic Rushe again:

All the US markets have now in the red. The Dow is down over 111 points having been up earlier in the day. Fed chairman Ben Bernanke and president Obama have both warned about "headwinds" from Europe and the market reaction to the Spanish news suggests investors think those ill-winds have arrived.

The Bank of Spain has said the problems with the country's banks are limited to a group of institutions for which the state has already started to act, presumably including Bankia and some of the regional banks.

A more detailed audit is due in September, and the banks will have nine months to implement any necessary measures. Some optimism there then, that things don't blow up badly beforehand. Nearly a year is a long time in the eurozone crisis, after all.

Futher detail on Spanish banks capital needs. There are two reports being presented:

• The figures below - €51bn to €62bn in the adverse case - comes from the Oliver Wyman review

• According to the other report, from Roland Berger, the figure is €51.8bn in the worst case scenario.

And the biggest three Spanish banks do not need further capital. As expected, the figures are higher than the IMF's €37bn but less than the €100bn loan on offer to the Spanish banks.

More snaps from the Spanish review:

• The bank audit is based on 9% core tier one in the base scenario, 6% in a stressed scenario

• The stressed scenario sees a 55% to 60% peak to trough house price fall

• The stressed scenario is tougher than the IMF report

And here's the figures:

• Spanish banks need an extra €51bn to €62bn in the adverse scenario, €16bn to €25bn in the base case

Here's a live broadcast in Spanish of the Spanish bank announcement. Lots of detail as to the methodology, but no figure yet.

As we await the results of the review into the Spanish banks, time to take a quick trawl round the markets.

And as the eurozone finance ministers meet, there is an air of caution around the place again, despite Spain succeeding in its latest bond auction, albeit at a price. A raft of disappointing economic numbers - from China, Europe and the US - has dampened optimism, which was already in short supply after the US Federal Reserve's move to extend its bond buying programme fell short of market expectations.

So the FTSE 100 has fallen 55.93 points to 5566.36, Germany's Dax is down 0.64%, France's Cac 0.24% and Spain's Ibex 0.33%. Italy's FTSE MIB has bucked the trend, up 0.14% while the Athens market is 1.83% higher. The Dow Jones Industrial Average however is down around 95 points at the moment.

More on the downbeat Philadelphia report, which fell to its lowest level in more than 10 months in June. Dominic Rushe writes:

New orders, shipments and unfilled orders hit their lowest levels of the year as the index registered minus 16.6 from minus 5.8 in May. The Philly Fed report is volatile and not an accurate guide to the US as a whole but David Semmons, senior US economist, called the report "ugly"

and warned if the trend spreads "people are going to be drastically more worried than they are right now."

Speaking of the Luxembourg meeting of eurozone finance ministers, Spain is apparently ready to formally ask for the €100bn of aid for its banks, but not today.

Ahead of the meeting - and this afternoon's audit report on Spain's banks - Spanish economy minister Luis de Guindos told reporters:

We have already started working on the design of the aid with the Commission, the European Central Bank and the International Monetary Fund. We will present the request in the next few days.

Meanwhile ahead of the official announcement of a review of the country's banks, due in fifteen minutes or so, the Spanish press seems to be suggesting they will need an extra €65bn.

This is above the IMF's earlier €37bn estimate, but obviously less than the €100bn on offer.

Some disbelief that bottles of champagne are being wheeled in for the eurozone finance ministers meeting, at the time of austerity and crisis.

What are they celebrating? RT @MatinaStevis Champagne for the EZ finance ministers. For real @gksteinhauser witnessed yfrog.com/ob61xnbj — Nicola Duke (@NicTrades) June 21, 2012

[Remember yesterday's pictures of thousands of Greek's queuing up for free fruit?]

Apparently the bottles are in fact cheap local fizz, but still..... Does it give out the right impression?

Perhaps surprisingly, European consumer confidence was pretty stable in June, although still weak.

In the eurozone the index figure was -19.6, compared to -19.3 in May, and in the wider 27-member EU, it was -19.5 compared to -19.4.

But there are further disappointing US figures. Existing home sales fell 1.5% in May, when analysts had been forecasting a 1.1% decline. And the Philadelphia Federal Reserve Bank's business index dropped nearly 11 points to -16.6, the lowest since August 2011. Economists were expecting a flat reading.

US markets have opened slightly higher, with the Dow Jones Industrial Average up around 14 points in early trading.

But there were fresh signs of a slowdown in the world's biggest economy in the wake of Federal Reserve chairman Ben Bernanke's gloomy statement on Wednesday. My colleague Dominic Rushe writes:



The number of Americans filing for jobless benefits fell slightly last week, according to the latest government figures, though the overall level continues to indicate a weakened labour market. Initial jobless claims fell by 2,000 to a seasonally adjusted 387,000 in the week ended June 16, the Labour Department said. The figure is worryingly close to the 400,000 threshold that economists say indicates the labour market is stalling.

With Wall Street now open, it's time for me to sign off and hand over to my colleague Nick Fletcher. Thankyou for all your great comments and see you soon.

Is the European Central Bank copying the Bank of England? The ECB has decided to loosen its collateral rules to make it easier for banks to access funding, according to German newspaper Die Welt, which cited central bank sources.

It said the changes would allow banks to use more mortgage-backed securities as collateral - which will help Spanish banks in particular.

The Bank of England unveiled measures to improve banks' access to funding and to boost lending to businesses and households last week, including allowing banks to swap poor quality assets like credit card debt and commercial real estate loans in return for six-month cash loans.

Credit rating agency Standard & Poor's has looked at the €100bn bailout offered to Spain's banks by the EU and concluded it is "enough to cover the system's potential capital needs for 2012-2013".

S&P credit analyst Elena Iparraguirre said:

We consider there is still uncertainty about the bailout implementation details, though, particularly regarding provisioning and capital requirements and the implications of the outcome of independent reviews currently underway. We are sceptical about the bailout being able to reduce the financial system's funding challenges in the short term as well as on lending resuming any time soon.

She added that the credit ratings of Spanish banks would not be immediately affected by the bailout.

However given the uncertainties about the full details of the bailout, we do not rule out the possibility that we could revise down some of our assessments of the standalone credit profiles for some banks as more information is made available.

The Spanish government is due to hold a press conference at 4.30pm BST to present the findings of bank stress tests undertaken by independent consultants.

There is a growing expectation that Moody's may downgrade its ratings on UK banks this evening. The Guardian's banking correspondent Jill Treanor reports:

The market has been awaiting the news of a review by Moody's ever since the agency first announced in February that it was looking at more than 100 financial institutions in Europe and a handful of US banks. Back in February, Moody's warned that Royal Bank of Scotland, 83% owned by the taxpayer, faced a one notch downgrade and Barclays and HSBC a downgrade of up to two notches. Lloyds Banking Group is also among those facing a downgrade. A downgrade can raise the borrowing costs of banks (as they may be deemed slightly less likely to pay back any loans) and also require them to post collateral against existing positions. RBS, for instance, has already warned that a one notch downgrade by a ratings agency could cost it £12.5bn in having to post extra collateral to some creditors although analysts reckon that markets had been well prepared for any downgrades to the UK major banks. The review took two formats. The one for investment banks - which covered Barclays, RBS and HSBC - looked at " structural vulnerabilities in the business models of global investment banks, which include the confidence-sensitivity of customers and funding ounterparties, risk-management and governance challenges, as well as a high degree of interconnectedness and

opacity". There was also one for European banks which looked at a number of areas including the "very difficult" operating environment in Europe.

Greece's new government wants to ask international lenders for an extra two years to meet its fiscal targets - with huge public pressure for a softening of the bailout terms.

Prime minister Antonis Samaras, leader of the conservative New Democracy party, is expected to unveil his cabinet today, but it is unlikely to include any big hitters from his leftwing allies - a sign of their reluctant support for the new government.

Moody's is expected to downgrade its ratings on UK banks this evening, it appears.

Markets have been waiting for this move for a while, as the ratings agency goes round the world downgrading countries' financial institutions in the wake of the current crisis.

Sky News is now reporting the downgrade will happen this evening. And just because it is expected, that does not mean it will have no effect, since it is likely to mean an increase in funding costs for the likes of Barclays, Royal Bank of Scotland etc.

What is the Federal Reserve and what does it do? – watch our animated guide.

The Fed could soon step in with a new round of actions to bolster the fragile American recovery as Europe's woes continue to rattle the US economy. But how does the Fed regulate the world's largest economy, and why are some people against it?

American economics professor Nouriel Roubini has tweeted this:

Berlusconi says: "It isn't blasphemous to exit the Euro" signaling the he/his party & powerful business interests want to return to the Lira — Nouriel Roubini (@Nouriel) June 21, 2012

The Spanish government will hold a press conference at 4.30pm BST to present the results of the Spanish bank stress tests. Economy minister Fernando Jiménez Latorre and deputy governor of Banco de España, Fernando Restoy, will answer questions.

Time for an early lunchtime round-up. Stock markets are still trading lower: the FTSE is down 34 points, or 0.6% at 5587; Germany's Dax has lost nearly 0.4% at 6368; and France's CAC is down more than 0.4% at 3113. Spain's Ibex has is more or less flat at 6794 while Italy's FTSE MiB has edged 0.25% higher to 13766.

Spain auctioned bonds worth €2.2bn, more than expected, but paid the highest interest rates in 15 years for five-year bonds.

On the open market, Spanish borrowing costs are falling, though. The yield on 10-year government bonds has dropped 23 basis points to 6.532%. The Italian yield is also down, to 5.718%.

The meeting of eurozone finance ministers in Luxembourg has got under way, with a press conference expected around 7pm London time.

Germany released disappointing manufacturing survey data this morning and eurozone business surveys pointed to a double dip recession, heightening expectations of an ECB interest rate cut and other action next month.

My colleague David Gow has just tweeted this, ahead of the Germany-Greece game (Euro 2012 quarterfinal) tomorrow night:

Schäuble forecasts 3-1 for Germany v Greece in Zeit interview: lass uns mal sehen. if wrong, what does that say about his analytical powers? — David Gow (@gowdav) June 21, 2012

Nicholas Spiro of consultancy Spiro Sovereign Strategy, has sent us his thoughts on the Spanish bond auction.

1. While sentiment going into today's auction was a tad more favourable, this is of little consequence to underlying concerns about Spain's creditworthiness. The modest size of today's sale helped domestic buyers absorb the supply. Spanish and Italian auctions are following a similar pattern: while demand is holding up, the concessions are becoming heftier and heftier. Indeed yields on Spain's 3 and 5-year notes at today's auction were at secondary market levels. 2. Spain's decision to request external financial assistance for its banks was a game-changer. It has put the spotlight firmly on the sovereign and fanned concerns that a full-fledged bail-out will ensue. At the root of Spain's woes is a vicious circle in which the severe problems of its savings banks, the weakness of its public finances and the sharpness of the economic downturn are all feeding on each other. 3. It's very difficult to see how buying bonds on the secondary market could turn sentiment around. The scale of the purchases would need to be considerable to make a difference, and the effects would be short-lived. Buying on the primary market would prove more effective but would come with strings attached. The reality is that, without a clear path towards a fiscal and banking union across the eurozone, restoring confidence in Spanish debt will prove extremely difficult.

Peter Chatwell, rate strategist at Crédit Agricole, told Reuters:

The auctions have all been well bid, particularly the 2014s [two-year bonds] which came through the market and was also very well covered. The rally over the past three days will have helped garner this strong bidding, seemingly with the market not wanting to be short given the pending talks regarding the EFSF/ESM.

Demand was high at the Spanish bond sales, with bid-to-cover ratios rising on all three maturies from the last time each bond was sold. The Spanish Treasury sold €700m of two-year bonds, €918m of three-year bonds and €602m of five-year bonds, beating its €2bn target for the total amount auctioned.

...and some instant reaction to that key bond auction in Madrid.

Nick Stamenkovic, rate strategist at RIA Capital Markets in Edinburgh, says:

Peripheral markets relieved that Spain managed to raise a tad above the upper end of the target. Demand was decent for all three auctions, probably driven by domestic investors, but yields significantly higher than previously, indicative of the rising risk premium demanded for purchasing Spanish government bonds. Against this backdrop short-dated yields should rally further near-term as shorts are covered amid rising hopes of policy action at next week's key EU summit, steepening the yield curve.

Spain has sold €2.2bn of bonds, more than it had targeted - but at a high cost. The average yield on the five-year bond has jumped to 6.072% against 4.96% at the last auction, reaching a 15-year high.

The yield on the three-year bonds rose to 5.547% from 4.876% at the previous auction, and the yield on the two-year bonds leapt to 4.706%, more than double that paid in 2.069%.

It's amazing what difference a little sunshine makes, says Alan Clarke at Scotia Bank, who has crunched the latest UK retail sales numbers.

Some decent news at last. Including auto fuel, sales rose by 1.4% m/m. Stripping that out, sales were up by 0.9% m/m. Headline sales were always going to be supported by a bounce in auto fuel sales. However the strength was not all down to auto fuel. Clothing sales bounced by almost 3½%. April was a washout, so consumers' appetite for spring fashion was dampened. By contrast, there were 60% more sunshine hours in May (and 10% more than the seasonal norm), and it was also a bit warmer, which helped to boost this component. Food sales also did ok, probably for the same reason as there was opportunity for a bbq or two. More generally, the trend in consumer spending should be improving as the burden from non-discretionary spending (i.e. food and energy) continues to ease, which makes more room for faster discretionary spending. The trend in retail sales should therefore be upwards from here, helping to contribute to better news for growth as the year progresses.

Meanwhile, in Britain shoppers turned out in force in May, splashing out on clothes and shoes as the weather improved (temporarily). Retail sales volumes bounced back 1.4%, although that was not enough to reverse April's 2.4% fall.

Here is some reaction to the PMI numbers, which painted a worrying picture of the eurozone economy.

Eurozone PMI signals double-dip recession, says Peter vanden Houte at ING.

All in all, today's still dismal PMI figures show that even Germany is now starting to suffer on the back of the uncertainty created by the euro crisis and the clear deceleration of activity in the emerging economies. Our expectation of 0.4% contraction in second quarter GDP is starting to look conservative on the back of the latest figures. It seems clear that no significant recovery can be expected as long as the future of the Eurozone remains in doubt. Therefore markets will be awaiting a strong commitment from European leaders at the summit next week to take the necessary steps to strengthen the monetary union in the coming years. Joint issuance of short term bonds, the establishment of a debt redemption fund and steps towards the creation of a banking union are likely to be on the agenda. Since Treaty changes might be needed to implement some of these plans, which might take years, we expect more immediate action from the ECB after the summit. A 25 basis point rate cut for July now look all but sure, but additional liquidity injections (LTRO, liquidity access for the ESM) might also be contemplated if market tensions don't subside after the summit.

The next few weeks will be crucial for the Eurozone. If anything, today's figure can serve as a wake-up call for European leaders that decisive action is badly needed.

Stephan Rieke, economist at BHF Bank, reckons the ECB will spring into action next month:

This is not a surprise for the ECB or the market. The expectations were very negative before the publication of htese numbers and they are still quite negative. The ECB already pointed to heightened uncertainty and heightened downward risks to growth. I think they just wanted to wait with action until the whole package is prepared. I'd expect the ECB to act in July at the latest. Which means on the one hand interest rate cuts, of course, combined with a package of measures that the eurozone finance minsters are preparing. I would expect more than just a rate cut. More non-conventional measures you might say.

Howard Archer, chief UK and European economist at IHS Global Insight, concurs:

The only remotely positive spin that can be put on the dismal eurozone purchasing managers surveys for June is that there was no further deepening in the overall rate of contraction in services and manufacturing activity. Hardly a cause for celebration! The surveys reinforce pressure on the ECB to cut interest rates and we suspect a 25 basis point cut from 1% to 0.75% is very much on the cards for July. The lower price indices evident inthe PMI surveys add to the evidence that inflationary pressures are easing in the eurozone, giving the ECB ample scope to trim interest rates.

Dominique Barbet at BNP Paribas:



The picture is not changing, it is not improving, and the PMIs are still clearly in recession territory for the eurozone. For the time being, and if we cannot sort out the financial crisis especially with the summit at the end of this month, the eurozone is likely to remain in recession.

Peter Dixon at Commerzbank:

The ECB will do more, that will probably involve a rate cut, which is symbolic but is action. If the need arises they will come back into the market with more LTROs despite the fact it is something they said they were not considering.

The eurozone private sector has taken another turn for the worse, according to the latest PMI business surveys. The composite PMI - made up of both manufacturing and services - was at 46 in June, unchanged from May - indicating further contraction. The 50 mark divides expansion from contraction. Services came in at 46.8 versus 46.7 in May, a tad better but still shrinking, while manufacturing was worse at 44.8 against May's 45.1.

The manufacturing and composite PMI readings are the lowest since June 2009, which doesn't bode well for the eurozone economies.

Ilya Spivak, currency strategist at DailyFX, looks ahead to the eurozone finance ministers' meeting, the Spanish bond auction and the publication of the Spanish bank stress tests:

Eurozone finance ministers begin a two-day meeting in Luxembourg. Coming on the heels of the G20 summit where EU policymakers faced heavy pressure from global leaders to step up crisis containment efforts, the sit-down may see the emergence of preliminary policy ideas. Concrete initiatives are likely to wait until the EU leaders' summit next week, but traders will nonetheless pay close attention to sideline commentary for early clues. Spain is also set to release the results of an audit meant to put a firm price tag on recapitalizing the country's banking sector. A number above or uncomfortably close to €100bn – the upper limit of the bailout Madrid secured last week – is likely to rekindle sovereign risk jitters. The results of a bond auction offering 2014, 2015 and 2017 paper today will serve as an instant barometer of the fallout, with a pick-up in average yields and/or particularly weak bid-to-cover readings likely to compound pressure on risky assets.

The French manufacturing PMI, by contrast, improved slightly, whilst showing further contraction. It came in at 45.3 for June compared with 44.6 in May, and was better than expected.

And the situation in the French service industries also improved, with the PMI rising to 47.3 from 45.1 in May - but remaining in negative territory.

The euro has tumbled to a session low of $1.26573, following the weak German manufacturing figures.

The PMIs are out - well on Twitter anyway. Terrible German manufacturing PMI of 44.7 in June versus 45.2 in May, the weakest since July 2009. Service industries are still expanding, but also weaker, with the PMI at 50.3, down from May's 51.8.

The immediate reaction on Twitter was "horrid" and "yuck".

Brent crude has hit the lowest level in 18 months, tumbling to $92 a barrel, amid fears over world demand. China's manufacturing sector continues to slow and the Fed's latest measures dashed hopes for more aggressive steps to boost the world's largest economy.

An unexpected rise in US crude inventories last week also hit Brent, which has slid 28% since reaching a peak above $128 a barrel in March.

China's factories contracted for the eighth month in a row in June with export orders the weakest since early 2009, according to the HSBC flash Purchasing Managers Index, the earliest monthly indicator of China's industrial activity.

"Obviously any indication that the Chinese economy is slowing more than expected will put further pressure on oil prices, and commodities," said Michael Creed, an economist at National Australia Bank.

European stock markets have opened lower, as expected. The FTSE 100 index in London is off 0.4%, or 23 odd points, at 5598. Germany's Dax has started the day 0.5% lower while France's CAC has shed 0.4%, Spain's Ibex has tumbled 1% and Italy's FTSE MiB has lost 0.6%.

Investors are cashing on on a four-day rally after the Fed stopped short of announcing a new round of quantitative easing and China released more weak economic figures.

On bond markets, the Spanish ten-year yield has edged down to 6.755%, below the 7% danger mark, while the Italian equivalent is at 5.76%.

Here is today's agenda. Spain is in the spotlight again: it will attempt to sell €2bn of two-, three- and five-year bonds around 10am. The expectation is that it will get it all away, but at high yields.

Two independent reports on the country's banking system are expected a few hours later, whereupon Mariano Rajoy's government will make a formal request for bank aid. How much of the offered €100bn will be needed? Some numbers that are being bandied around are in the region of €70bn. Certainly the IMF's estimate of €37bn three weeks ago looks to be wide off the mark.

• Revised June manufacturing and services PMIs for Germany, France and eurozone

• Finland votes on ESM at 8am

• Spain holds €2bn bond auction around 10am

• Spanish bank stress tests

• Eurogroup press conference at 7pm

• Greek cabinet to be unveiled

All times BST

Well, this promises to be an interesting day. Welcome back to our rolling coverage of the eurozone debt crisis and world economy.

Greece has a new Conservative-led government under Antonis Samaras, but the US Federal Reserve's extension of Operation Twist last night seems to have fallen flat... To sum it up: Fed twists again, but no QE3 yet.

Andrew Taylor, market strategist at GFT, says:

The Fed delivered what the majority of the market had priced in but seems now that it is here markets seem unsure of how it was supposed to help. Traders who enjoyed a rally on the hopes of Operation Twist are only now calculating that its affects are minimal if anything at all. This programme was definitely not pulled out of the Fed's 'stimulatory' toolbox, in fact, it should have been in a box on the wall that says 'break glass if you are out of solutions'.

Spanish bond yields fell sharply yesterday in the wake of speculation that Europe's leaders were thinking about allowing bailout funds to buy bonds directly, even though German chancellor Angela Merkel poured cold water on the idea saying it was "purely theoretical".

Michael Hewson, senior market analyst at CMC Markets UK, says:

The idea will certainly be on the agenda at the start of today's two day EU finance ministers meeting, but it is a long way from being a work in progress, simply because the new ESM doesn't even exist yet.

Markets are eagerly awaiting a Spanish bond auction of €2bn of two-, three- and five-year bonds later this morning, as well as two reports on Spanish banks that should shed light on how much of the mooted €100bn bailout will be needed to recapitalise the sector. The €37bn figure suggested by the IMF earlier this month certainly looks much too low.