Debt crisis: as it happened - November 2, 2011

Quote We believe in the benefits for growth, lowering our burden of debt, a strong package of support for the next few years. We can put our house in order and make a viable economy. But this comes with responsibilities. It is Important that the Greek people make a decision on important developments. It is our democratic right and Greek people, I believe, are mature and wise enough to make the decision. We're very proud to be part of the eurozone. It is crucial we show the world we can live up to our obligations. It is crucial to our future in eurozone. The referendum could be held on December 4. I am returning to Greece to consult with the leaders of other parties to inform them of the discussions we have had. I informed Mr Sarkozy and Ms Merkel that we need to have wide consensus because this programme is difficult to implement. The essence is not only of the bail-out programme but whether we want to be in eurozone. But the Greek people want us to be in eurozone.

But Friday's confidence vote is our first battle. I hope we will win.

I want the Greek people to speak and they will speak soon.

23.05 Meanwhile, Sarkozy accepted that there will be a bail-out according to certain rules.

Quote It is not up to us to tell Greece what to do. We are not asking for anything other than Greece obeys the rules. It is up to them whether they accept the rules or not. There is not enough leadership [in the eurozone]. This is not a pleasant situation to be in but this is where we are.

23.03 The press conference by Merkel and Sarkozy has just ended. Strong words from both leaders. They have said that the EU is more important than Greece. This from Merkel:

Quote With Europe we have the admiration of whole world. The eurozone needs coordinated and agreed response to take forward the agreement of last week. The psychological situation has changed due to Greece's referendum. The Greeks decided to hold this referendum without warning. But we will not abandon principles of democracy. We cannot put at stake the great work of unification of the euro.

22.14 Meanwhile, Russia is on the verge of ending its 18-year wait to get into the World Trade Organisation after accepting a Swiss-mediated deal that removed reservations by its arch-foe Georgia.

22.12 The euro meeting has just ended.

22.02 We are hearing reports that Italy's government has given the go-ahead to a package of economic reforms aimed at easing pressure from markets worried about contagion from Europe's debt crisis.

21.37 Nicolas Sarkozy and Angela Merkel are to make a joint statement tonight after their meeting with Greek PM George Papandreou.

21.15 The G20 leaders are now sealed away in their talks, which are likely to carry on until late tonight/early this morning.

20.55 Further quotes from Guangyao are coming in which are slightly more positive. Still, it's clear that there's little hope of Chinese investment unless Europe can come together and provide some concrete plans.

Whether or not you should be optimistic about the possibility of China coming to the rescue depends on your faith that European leaders can collaborate to create a firm and effective plan to bail-out its troubled states...

Quote The EFSF is part of China's investment of its foreign exchange reserves. The fund has not established details of its investment options so we still can't talk about the issue of investing.

We have confidence in Europe. We hope the European Union and the euro zone will implement these crucial plans to stabilise financial markets and foster economic growth.

Currently there are no technical details yet on these two new [EFSF] mechanisms, so there is no question of talking about investment.

20.32 Zhu Guangyao, China's deputy finance minister, has said that China can't consider putting more cash into the EFSF bail-out fund as the plan to leverage its €440 billion to €1 trillion is too vague - certainly not the first time this has been suggested since the Grand Plan was unveiled.

This comes just minutes after the director of the international department at the Chinese central bank - who is also in Cannes - said that China will see Europe as a key investment area for the foreseeable future. Confusion reigns in Cannes this evening.

20.17 IMF chief Christine Lagarde says she has "never seen as much determination and decisiveness to act in a coordinated fashion" as the eurozone leaders are currently showing. Presumably that desire for coordination is coming from countries other than Greece.

Quote Of course there are hiccups on the road, sometimes major hiccups, but what matters is what has been agreed on Oct. 26 ... and the resilience and the determination of the European partners.

20.15 China is becoming an increasingly important part of this eurozone story.

Tonight Sarkozy is talking to Chinese President Hu Jintao, in the hope that he will use some of his €2.3 trillion in foreign exchange reserves to ease problems here in Europe.

Zhang Tao, director of the international department at the Chinese central bank, is also in Cannes, and said that China will see Europe as a key investment area for the foreseeable future.

20.05 The bell has rung at the New York Stock Exchange, ending the day's trading on the US markets.

Ben Bernanke's announcement passed without much reaction from US markets initially, but small hints that QE3 could be on the way in the future eventually nudged stocks upwards.

The Dow Jones closed up 1.53pc, the S&P 500 rose 1.61pc and the Nasdaq climbed 1.27pc.

19.47 Papandreou has just arrived at the G20 Summit. He didn't look nervous. Incidentally, the summit is being held in the Palais des Festivals et des Congrès, where the Cannes Film Festival takes place.

19.44 Sarkozy will be meeting Chinese President Hu Jintao tonight. Alistair Darling said earlier on that China wouldn't come to the rescue, but Paul Irwin-Crookes, from the China Centre at Oxford University, believes otherwise:

Quote It's important to know that China will want to understand more about what the agreement involves. Europe is a very important trading partner, the most important trading partner, for China.

As a result it's just as interested in ensuring that Europe continues to be stable. There are obvious aspects where China's interests are wrapped up with Europe's future prospects. There are some very good motivations.

19.25 We have a slideshow of images from the build-up to the G20 Summit in Cannes. As you'd expect, protesters from a wide range of groups are there, and some of them look like they've put some serious effort into their costumes.

19.18 Alistair Darling, former chancellor, is speaking live on Sky News now. He says the eurozone has "blown" its chance to present a detailed plan, which would have prevented the Greek referendum call. He also said that China would not come to the rescue of Europe.

Quote We've now got a major economic crisis which has every risk of spilling back into the banking system. It is very, very serious and they need to get a grip on it.

I don't think Greece has got a hope in hell of actually achieving this. Until we've got a sensible plan to get growth going on, these problems are just going to keep going on and on. If you don't get growth you get higher borrowing and higher debt.

19.10 A quick flash back to London now, where the St Paul's protesters have reportedly been offered a chance to stay put until January. We'll bring you more as we have it, but John Cooper QC, who represents the protesters, tweets this:

19.05 Eurozone chairman Jean-Claude Juncker is at the Cannes meeting, and he is not happy with Greece's decision to stop the bail-out process to give the public have a chance to vote. He said: "We took a decision last week as 17 (member states), we can't allow anyone to disassociate himself from that decision."

But a pragmatic French official, also at the summit, said there was little chance of stopping them. The best they could hope for was to get the vote out of the way quickly.

Quote It is too late to persuade them to go back on the decision to hold a referendum. The idea is that they hold the referendum as quickly as possible and make it about being in the euro.

19.00 Meanwhile, back in Europe, tensions are running high...

A European Union official has given an interview to a small group of reporters in Cannes, appearing "angry and frustrated", according to the Wall Street Journal. The anonymous official said:

Quote I have no words to describe how I feel about Greece. Uncertainty is exactly what we don't need right now.

If Greece were going to war tomorrow, they would establish national unity. Well, we are at war. The crisis is that bad. And it's time that Greece put party politics aside and demonstrate national unity.

Greece as a country has to make it clear that they want to make the kind of effort that is necessary. If not, they have to bear the consequences.

18.46 Bernanke has claimed that without the support of monetary policy, the US economy would be in "a much deeper ditch".

The severity of the financial crisis was more severe than believed, in retrospect, he admitted.

18.38 Bernanke has been asked if it is true that MF Global's leveraging ratio was 40:1, and whether the Fed thought that appropriate. He replied that the company was approved as a primary dealer in February, and that at the time it matched the criteria. It was described as an "idiosyncratic" bankruptcy.

Quote We have set those standards to allow smaller firms like MF Global to participate.

We are not the regulators... we do not have ongoing insights into developments with the company. Making them a primary dealer did not constitute a seal of approval.

We stopped trading with them before they failed and we suffered no losses.

18.26 Here are some of Bernanke's responses so far:

Quote Our job is to do the best job for the US economy. Therefore we're going to make our decisions based on what's good for the economy and we're not going to take politics into account. The area we've fallen short is on the employment side.

The Fed's mandate is a dual mandate. We have a mandate for employment and price stability. We talked yesterday about nominal GDP as an indicator... and it was a very interesting discussion. We are not contemplating any radical change in framework, we're going to stay with the dual mandate approach we've been using.

I certainly understand that many people are disatisfied with the state of the economy, I'm disatisfied with the state of the economy. Unemployment is far too high.

18.25 He's now taking questions...

18.22 Ben Bernanke has just walked in... Here are some of his early key points:

Pace of progress expected to be "frustratingly slow"
"We will continue to monitor European developments closely"
Disruption from Japanese earthquake has diminished
Inflation will settle at or below mandated level of 2pc

18.09 The Federal Reserve is due to hold a press conference any minute now. Stay tuned.

17.53 Some more mood music for you, courtesy of Italian PM Silvio Berlusconi (see 15.50). Mr Berlusconi is due to hold an emergency cabinet meeting to implement reforms promised ahead of the Brussels summit last week.

17.31 In simple terms: it's a 'no' to more Greek aid unless there is a 'yes' to the bail-out plan and all the painful austerity measures associated with it.

This tweet from Reuters Breakingviews columnist Peter Thal Larsen doesn't help to set the mood:

17.28 Another IMF source told Reuters:

Quote The board would not want to give money to Greece and then wonder what will happen [...] The board will want comfort that Greece will fulfil its commitments and right now Papandreou is unable to give that.

The sooner Greece holds the referendum, the sooner the sixth tranche will be paid. But right now, it isn't going to be paid.

17.22 This from Bruno Waterfield, in Brussels:

17.05 Meanwhile, Europe's markets have closed. The FTSE 100 in London closed up 1.15pc at 5,484.10, while the CAC 40 in Paris finished up 1.4pc and the DAX 30 in Frankfurt rose almost 2.3pc.

Angus Campbell at Capital Spreads, said:

Quote So often in the past we’ve seen markets rally ahead of important summits or meetings, which is exactly what we’ve seen today on the eve the G20. Today is a classic example of optimistic buying ahead of a major meeting of global leaders in the hope that they can brush the Greek referendum plans aside as merely a blip.

16.55 US markets have hardly batted an eyelid at the news, and are holding onto their early gains.

Joshua Brown at Fusion Analytics, said:

Quote There's not much red meat in the statement. We're going to be more interested in how the press conference goes to see if he gets asked about GDP targeting. There doesn't appear to be much in the statement that's different than the expectation.

Absolutely no surprise on the rates.

Fed chairman Ben Bernanke will hold a press conference at 6.15pm (UK time).

The Fed said it was holding off on any new actions to help the US economy because stronger growth is giving it time to gauge the impact of steps it has already taken (Photo: Reuters).

16.41 So same old twisting, no more printing - at least for this month.

It wasn't all happy families though. Charles Evans, head of the Chicago Federal Reserve, was the lone Fed dissenter. He voted for "additional policy accommodation"

16.38 In a brief statement, the Fed added:

Quote The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets.

16.33 BREAKING There is no further QE from the US Federal Reserve, but it will continue with Operation Twist - its scheme to sell short-term securities holdings and buy long ones to try and drive down interest rates on mortgages and loans.

There is a hint, though, that the Fed could bring more QE in the future, saying that it was "prepared to employ its tools to promote a stronger economic recovery".

16.28 The vote will take place on Friday, and will be concluded by midnight.

16.23 The Greek parliament have begun their debate on the confidence motion billed for Friday.

16.10 The FT reports that the Greek referendum will take place in December.

15.50 Who says Mr Berlusconi doesn't know how to empathise with his people? The Italian prime minister has reportedly put his latest album on hold out of respect for the current crisis engulfing Italy.

Nick Squires in Rome reports:

Mr Berlusconi had been expected to release an album of 11 songs, titled 'True Love', in September.

The songs were written by the 75-year-old billionaire and sung by Mariano Apicella, a Naples-based singer who has become the prime minister's de facto personal minstrel.

They have collaborated on a number of albums in the past – this is their fifth CD.

But Mr Berlusconi appears to have judged it inappropriate to release the album of sentimental ballads at a time when millions of hard-pressed Italians are feeling anything but sentimental towards him.

Mr Apicella [left] said: The premier is an expert in Neapolitan music and a talented songwriter.

15.47 There's pressure on eurozone leaders from all sides to fix the debt crisis, and now even his Holiness has thrown his hat into the ring. Pope Benedict XVI called on G20 leaders to promote "humane and integral development":

QuoteIt is my hope that the meeting might help to overcome the difficulties that, on a global level, are blocking the promotion of an integral and authentically human development.

15.25 Italy has called an emergency cabinet meeting for later today. The reason? To implement economic reforms ahead of the G20 summit. The man under pressure? Silvio Berlusconi.

Parliament will convene this evening to adopt "the most urgent measures," according to transport minister Altero Matteoli, quoted by ANSA news agency in Italy.

15.11 Willem Buiter, chief economist at Citigroup, Goldman Sachs' Jim O'Neill and Katinka Barysch, deputy director of the Centre for European Reform in London are talking to Stephanie Flanders on Radio 4.

Mr Buiter poses an interesting question. Even if Greece votes 'yes' to the bail-out - who's going to keep the country afloat in the mean time?

Quote Even if it won, it's difficult to see if the IMF will disburse payment [for its existing bail-out loan] in the mean time – and if the IMF doesn't disburse then other countries will not want to disburse either. The worry is that in December [when the next aid tranche is due] there will be a disorderly default.

Ms Barysch adds that by calling for a referendum, Mr Papandreou has:

Quote kicked the can out of his own hands and into the people’s hands.

14.50 Francois Fillon, France's prime minister has also asked for concrete decisions from Greece. He said he "regretted" the country's decision to call for a referendum on the bail-out package, and told parliament:

Quote Of course ... in a democracy it's always legitimate to turn to the people but we regret and I want to say this solemnly ... this unilateral announcement on a problem that involves all of Greece's partners [...] The Greeks must say quickly and without ambiguity if they want to keep their place in the eurozone or not.

14.40 With the Greek PM dependent on getting through a vote of confidence from the country's MPs on Friday, the BBC has put together a handy chart of the composition of the parliament so you can see what Mr Papandreou is up aganist. (He's the leader of the PASOK party).

14.26 Ambrose says that he is a Krugman fan but "he is wrong about the specific case of Britain", which cannot be compared with the US. The mix of spending cuts and loose monetary policy has worked for us before. He writes:

Britain has won a reprieve because the Coalition has held rock solid and stuck to its policies. Perhaps there might be some safe margin for loosening now, but not much. [...]

Britain has rescued itself twice over the last century by a radical mix of fiscal tightening on the one hand and monetary stimulus with devaluation on the other.

We did it in 1931-1932 after liberation from the Gold Standard, and we did it again in 1992-1993 after liberation for the Europe’s Exchange Rate Mechanism (when Cameron had a ring-side seat as an aide to Chancellor Norman Lamont).

14.25 Ambrose Evans-Pritchard, the Telegraph's International Business Editor, turns his great brain to the subject of Britain for a change.

He takes issue with a piece written by Nobel Prize-winning economist Paul Krugman in the New York Times, called "Cameron's Fantasy" in which he derides the PM's clams that Britain's discipline in sticking to austerity plans has brought down borrowing costs and avoided a debt crisis.

Paul Krugman won the Nobel Prize in Economics in 2008 (Photo: AP)

14.20 ...while Jose Manuel Barroso has brought out the violins, warning that failure to support the latest bail-out deal would result in a fate worse than...austerity.

Quote I want to make a very urgent, heartfelt appeal for national and political unity in Greece.

...the head of the European Commission told Reuters in a statement. He added:

Quote Without agreement of Greece to the programme supported by the EU and IMF, conditions for Greek citizens will become much more painful, particularly for the most vulnerable.

14.10 German Chancellor Angela Merkel has said has insisted on less talk, more action at today's meeting of eurozone leaders. She told reporters:

Quote For us, it is actions that matter. We agreed a programme with Greece last week. And from the EU side, at least for Germany, we want to implement this programme. For this, we need clarity and that's what these talks tonight are about.

14.04 Another chance to see Prime Minister David Cameron and Labour leader Ed Miliband at Prime Minister's questions today:

13.45 US markets have opened higher. The Dow Jones Industrial Average ticked up 1.3pc to 11,811.37, while the broader S&P 500 rose 1.5pc to 1,236.27.

13.25 Some timings for the meetings this afternoon, both London time:

16.30 - Merkel, Sarkozy emergency meeting in Cannes, along with Jean-Claude Juncker, who chairs eurozone ministerial meetings, IMF chief Christine Lagarde, top EU officials Herman Van Rompuy and Jose Manuel Barroso, and an official from the European Central Bank.

19.30 Greek PM George Papandreou joins emergency meeting with the group above.

13.10 BBC business editor Robert Peston has been speaking on BBC News. His main concern?

Italy.

He points out that although stock markets have been jittery today:

Quote ...much more important is the impact of the price on Italian debt [...] a much bigger economy with much bigger debts. There is a genuine risk that italy could find burden of interest is too excessive [and] the stakes in terms of the eurozone are incredibly high.

12.45 Telegraph reporters James Kirkup and Chris Hope are outraged that there was no proper discusson of Greece at PMQs:

12.30 Something new to worry about - French bonds.

The gap between the amount of interest invetsors charge to hold German government debt compared to French government debt is at its widest since the euro was set up.

In layman's terms, that means investors see lending money to France as a riskier bet than to Germany.

Yields on French government debt are 1.3 percentage points more interest than Germany on debt due in 10 years - 3.1pc compared to Germany's 1.84pc.

Andrew Roberts, head of European rates strategy at Royal Bank of Scotland Group, described French bonds as a "key short" meaning investors should expect the price to fall and the yield to rise.

12.19 Alistair Darling, the former Chancellor, has waded in at PMQ's.

He asks if Britain will press for details on how Greece will get itself back on its feet at the Cannes G20 meeting that starts tomorrow.

David Cameron says that although he feels "some progress was made" in Brussels last week, the need for decisive decisions and to "put the meat on the bones of these plans" was "even greater".

12.10 The Prime Minister is getting a bit of flak on Twitter for the "global storm" claim (12.08 post) - commentators are hearing echoes of Gordon Brown.

From the Telegraph's James Kirkup:

12.08 It's a lively Prime Minister's Questions in the House of Commons today, and even speaker John Bercow remarks "the house is getting far too excited - it's only six minutes past".

Ed Miliband starts his questions by questioning yesterday's GDP figures that showed the UK economy grew by 0.5pc - better than expected but viewed as lacklustre by many economists.

David Cameron retorts that Mr Miliband "can't even bring himself to welcome news like that!" He adds:

QuoteThere is a global storm in the world economy today and it is in our interest to help confront that global storm, but it is also in our interest to keep our country safe.

11.55 Daniel Knowles, the Telegraph's assistant comment editor, says Germany should consider the lessons of its own past when it seeks to squeeze Greece until the pips sqeak. He writes:

In 1923, French and Belgian soldiers marched over the border into the Ruhr, part of the fragile new democracy of Germany. They took control of the coal mines, iron foundries and steel mills and simply carried over the goods they were owed as part of the Versailles reparations treaty.

In response, the Weimar Government was force to print money to pay its workers.

I bring this up because, now, the situation is reversed. Today Germany is the creditor.

Understandably, German voters are annoyed to be depicted as Nazis in Greek newspapers while they work longer years, in harder jobs, for roughly the same pay they were earning 10 years ago.

... But the Germans cannot invade Greece and take holidays on the islands without paying. They cannot take over Crete and declare it a new German state.

They have to accept that Greece cannot pay its debts, and that the only alternative to Germany paying its debts for it is catastrophe. It does not pay to be vindictive.

11.30 Following up on the 10.55 post, the Bank of Italy HAS now come out and denied newspaper reports that it would set up a bond swap with Italian banks to try and ease Italy's borrowing costs. So back to the drawing board.

The Italian central bank said reports were "without foundation and contrary to European rules".

11.15 Greece may not be the only place about to see a change of leader - Silvio Berlusconi's popularity ratings among Italian's have fallen even further.

Only 22pc of Italian's have "a lot" or "enough" confidence in their prime minister, down from 24pc in September. By contrast, 66pc of people have "zero" confidence in the 75-year old leader, according to the poll for the newspaper La Repubblica.

11.05 While the EFSF delays, Portugal has just got its own government bond auction away, selling a total of €1.24bn (£1.07bn) in three-month bills, but at a heavy price.

Average interest rates paid on the bonds rose to a euro-era high of 4.997pc, up from 4.972 previously, though demand outstripped supply two-fold.

11.00 The delayed EFSF bond sale (see 10.00) has shaken markets.

After early gains, the FTSE 100 is now trading down 0.3pc at 5405.73, while the CAC 40 in Paris is only slightly up at 3,075.48 and Frankfurt's DAX is trading 0.2pc higher.

Ben Critchley, sales trader at IG index, said:

QuoteOnce again, dealers have been served up another dead-cat bounce as the session gets established.

Asian markets may have found some support off the belief that perhaps Greece couldn’t derail the bailout plans quite as easily, but there’s now mounting pessimism in Europe ahead of the G20 meeting.

Add to this the fact that a number of the largest-cap companies in London have gone ex-div today and that’s another 13 points off the FTSE, so the fact that we’re finding ourselves back below 5400 can be of little surprise.

10.55 It's claim and counter-claim today - Italian newswires are now reporting a denial from the Bank of Italy that they plan to set up an emergency bond swap with Italy's banks (see 09.05 post) in order to get banks to buy more government debt and ease funding pressures.

We'll keep our eyes peeled for a Bank of Italy statement.

10.50 Hmm, embarassing fat finger over at the AFP news agency - at 10.35 came the headline "European plan to save Greece is off the table: German foreign minister" - which is fairly serious stuff.

But just 10 minutes later came the instruction "Kill" - the Greek rescue deal is NOT off the table. For now anyway...

10.45 As per 09.40 tweet, ITV's Laura Kuenssberg is in Cannes for the G20 and notes an unfotunate choice of venue for press accreditation:

10.40 The power of the Greek army should not be underestimated. The table below, courtesy of Marc Ostwald at Monument Securities, shows that on a per capita basis, its army is larger than China, America and even embattled Syria:

State
Active
Reserve
Paramilitary
Total of population
Total per 1,000 capita
United Kingdom
197,780
212,400
0
410,180
6.7
Greece
156,600
237,500
4,000
398,100
37.1
Egypt
468,500
479,000
397,000
1,344,500
17.0
Algeria
147,000
150,000
187,200
484,200
14.2
Libya
76,000
40,000
0
116,000
18.3
Syria
325,000
314,000
108,000
747,000
34.3
Turkey
620,000
429,000
102,200
1,151,200
15.0
France
352,771
70,300
46,390
469,461
7.3
Portugal
43,330
210,900
47,700
301,930
28.2
Spain
128,013
319,000
80,210
527,223
13.0
China
2,285,000
800,000
1,500,000
4,585,000
3.4
USA
1,580,255
1,458,500
11,035
3,049,790
9.8
Russia
1,027,000
754,000
20,000,000
21,781,000
155.5

10.30 Last night's surprise announcement from Athens that the chiefs of the Greek army, navy and air-force were being replaced by other senior officers has recalled memories of the military junta that ruled the country between 1967 and 1974.

As Paul Anast writes in today's Telegraph:

QuoteThe development gave the impression that a Turkish-style military conspiracy was suspected by the government, but no such rumours or allegations had circulated in the country.

Greece has been free of political interventions by the military since the overthrow of the military junta that ruled the country in the 1967-74 period.

Officers celebrate during the military junta that lasted between 1967 and 1974

10.15 For those of you who were worrying, the Greek finance minister, Evangelos Venizelos, who was in hosptial with stomach pains yesterday when the Greek government was about to collapse, is now back on his feet.

He's feeling so much better he will accompany PM George Papandreou when he goes to meet Angela Merkel and Nicolas Sarkozy in Cannes this afternoon.

The Greek pair should have plenty to catch up on en route - Mr Evangelos said yesterday he hadn't even been told that the referendum would be announced.

Greek PM George Papandreou (left) and finance minister Evangelos Venizelos.

10.10 More on the delay to the bond sale by the EFSF - from a lead manager at one of the banks arranging the sale, courtesy of Reuters:

QuoteThe EFSF has no immediate urgency to fund and felt that doing a deal today might be rushing things, especially given recent market volatility.

Not sure that stock markets are buying this reason...

10.00 BREAKING The European Financial Stability Facility (EFSF) - also known as the bail-out fund, has been forced to delay a bond sale to raise €3bn (£2.58bn) that was due to take place today.

Bloomberg is reporting thatthe sale has been delayed because of market conditions, citing people close to the deal.

As a result, European markets have now given up their gains first thing this morning:

The FTSE 100 is down 0.6pc at 5,389 while the CAC is off 0.3pc in Paris and the DAX fell 0.1pc.

09.55 Bruno Waterfield has an update from Brussels on what Nicolas Sarkozy will be telling George Papandreou at their meeting with Chancellor Merkel this afternoon. (He links to this article from Le Monde if your French is up to it.)

Twitter@BrunoBrussels: Sarkozy to tell Papandreou, no new talks and next EU-IMF payment will not be paid until Greece says Yes

09.50 Away from the eurozone gloom, there's some good economic news for the UK this morning,

Construction activity in Britain picked up in October to a five-month high as firms took on new work and increased hiring rates.

The Markit/CIPS construction PMI index jumped to 53.9 in October, against expectations for a dip to 50, and up from 50.1 in September.

Construction workers in London recreate the famous image first pictured in the New York Herald Tribune - but with more safety equipment.

09.45 As well as the gloomy manufactuing figures from the eurozone (see 09.20 post), the unemployment rate in Germany has also risen for the first time in almost two years.

Germany's Federal Labour Office said unemployment rose by 10,000 compared to an expected drop of 10,000, pushing the unemployment rate up to 7pc from 6.9pc in September.

Joerg Lueschow at WestLB, said:

QuoteConsidering the conditions in the real economy - with a weaker economy in the winter period and weakening global demand -- it's time to start getting ready for the fact that the situation on the jobs market won't be able to continue as it has. The development could then be stagnation.

09.40 ITV's business editor Laura Kuenssberg is on her way to the G20 summit in Cannes, and flags up the absurdity of holding debt crisis talks in the wealthy people's playground that is the South of France:

Twitter@ITVLauraK: All the ads in Nice airport are for posh watches, speedboats and 'wealth management' firms - incongruous much?!

09.30 Daniel Hannan, Conservative MEP and Telegraph commentator, says Greece's referendum has Brussels' bureaucracy spitting feathers.

I wish I could convey the sheer horror that his proposal provoked in Brussels.

The first rule of the Eurocracy is “no referendums”. Brussels functionaries believe that their work is too important to be subject to the prejudices of hoi polloi (for once, the Greek phrase seems apposite).

Referendums are always seen as irresponsible; but, at a time when the euro is teetering on the brink, Papandreou’s proposal was seen as an act of ingratitude bordering on treason.

09.20 This table shows how the eurozone countries compare:

Country
October manufacturing PMI (final)
Context
Greece
40.5 (A reading above 50 indicates expansion)
31-month low
Italy
43.3
28-month low
Spain
43.9
2-month high
Netherlands
48.0
27-month low
Austria
48.0
27-month low
France
48.5
2-month high
Germany
49.1
27-month low
Ireland
50.1
5-month high

You know it's bad when Germany - the king of making things, isn't making things.

Markit said Germany - one of the main drivers of the previous recovery - saw its PMI indicate contraction for the first time since September 2009. It added:

QuoteRates of contraction accelerated sharply in Greece and Italy, with the performance of Italy deteriorating.

09.15 Final estimates of a eurozone manufacturing survey show that the decline in October was even more marked than previously reported.

The final Markit Eurozone Manufacturing Purchasing Managers Index (PMI) for October fell to 47.1, from a preliminary reading of 47.3 and down from 48.5 in September.

Any reading below 50 indicates contraction. Rob Dobson, senior economist at Markit said:

QuoteThe latest manufacturing PMI further emphasises the marked reversal of fortunes for a sector that was the leading light of the economic recovery

09.05 As per the post below, the pressure on Italian bonds has eased a little this morning. The yield, or the rate of interest investors demand to hold the debt, has fallen back but still remains over the crucial 6pc level at 6.01pc.

Italian newspaper Il Messagero and local newswire Ansa are reporting that the Bank of Italy will start an emergency operation to swap government bonds held by Italian banks in exchange for a pledge from institutions to buy longer-dated debt.

If there are more buyers for Italian government debt, it will push the price up and the yield, or borrowing cost, down.

The country's top finance officials, including Economy Minister Giulio Tremonti, Bank of Italy governor Ignazio Visco and Treasury head Vittorio Grilli are meeting at 2pm today in Rome.

08.45 Let's not forget Italy and Spain - which are far bigger economies than Greece and have the capacity to cause far more damage to the eurozone. As Ambrose Evans-Pritchard reports, when yields on Italian government debt are above 6pc then warning lights flash.

Andrew Roberts from RBS said Italy's debt stress is "dangerously close to a level that could cause pandemonium in financial markets".

The point of no return - judging from the sequence in Greece, Ireland and Portugal - would most likely be if LCH Clearnet imposed higher margin requirements.

This trigger is 450 points over a basket of AAA benchmark bonds. The spread reached 388 on Tuesday. "We're two more days of violence from this point, but we're not there yet," he said.

08.30 Given that a Greek referendum is now even more likely to go ahead, it is a mite confusing that European shares are up strongly this morning.

Certainly disaster in the form of a collapse of the Greek government has been averted for now, but there's more to it.

According to traders speaking to Bloomberg News, it's because investors are looking ahead to this afternoon's US interest rate decision and announcement from the Federal Reserve, which could contain some indication that the Fed is willing to do more to help the US economy.

Jonathan Sudaria, a trader at London Capital Group, told the news agency:

QuoteEuropean markets are seen edging up on speculative hopes of a dovish FOMC. Hopes are for some sign of further easing in the wings to ensure that the US economic recovery doesn’t falter.

08.25 Benedict Brogan, deputy editor of the Daily Telegraph, has more details on today's meeting aead of the G20 summit in Cannes.

Nicolas Sarkozy and Angela Merkel are meeting with the Greek Prime Minister George Papandreou in Cannes today, and all eyes are now on the Cote D'Azur for tomorrow's G20 heads of government meeting.

David Cameron flies out first thing tomorrow morning, and by then the various meetings without coffee involving bad boy Greece and the mummy/daddy act of Merkel and Sarkozy will have produced...something.

08.15 The other European markets are now open and are also climbing:

The FTSE 100 is up 0.7pc to 5,459 points, while the CAC is up 1.5pc in Paris and the DAX added 1.3pc in Germany.

The gains follow steep falls yesterday, when the CAC slid 5.4pc and the DAX lost 5pc.

08.05 Even if you are a great lover of democracy, supportive of Greece holding a referendum because it has a right to as a sovereign nation, it's worth thinking about what is making the rest of Europe's leaders to anxious.

If Greece does reject the terms of the bail-out agreed last week, it will not be eligible for more EU and IMF money and will quickly run out of cash, defaulting on its debts and not being able to pay for any public services.

HSBC's Steven Major has told Radio 4 this morning that if Greece can't pay its debts, it would be the biggest-ever default by a sovereign country. That is a "systemic" problem, he said, because those losses would hit banks and cause the whole financial system to slam shut, pulling every other economy down with it.

So it's clear to see why Mrs Merkel and President Sarkozy have called an emergency meeting today.

08.00 The London market is now open and has shown a slight rise, after yesterday's steep fall:

The FTSE 100 rose 0.4pc to 5,444 points shortly after trading began.

07.50 Damian Reece, the Telegraph's head of business, says yesterday's market collapse on the news of the Greek bail-out shows how far the political and economic have beome intertwined.

It is revealing that even the threat of a referendum and, of course, the possibility of a no vote, should send such waves of fear and loathing through the political elite and financial markets.

Tuesday highlights how vulnerable the bail-out, and the euro, is to popular opinion.

07.40 The newspapers are all dominated by Greece and the market chaos caused by the country's decision to hold a referendum on the eurozone bail-out.

The Telegraph: Greece on brink of collapse as European markets lead rout

The Times (£): Markets dive as euro rescue plan unravels

The Financial Times (£): Race to save eurozone deal

The Guardian: Greek government teeters on the brink of collapse

The Independent: Oops! There goes the euro rescue plan...

07.35 A recap on yesterday's poll, which provided a resounding answer as to which way the Greek referendum is likely to go!

07.30 More on the politics in Greece - George Papandreou has scored a victory overnight getting cabinet support for the referendum, but he still faces a vote of confidence by the Greek parliament on Friday.

If he can overcome that hurdle (and he says he is confident of doing so) then he needs a majority of 151 out of 300 Greek MPs to agree to the referendum.

He only has a slim majority of 152 at present, and members of his own PASOK party were yesterday calling for snap elections. So the fate of the referendum is in the hands of Greece's parliament.

The referendum could be held as soon as December if it does go through, the Greek interior minister reportedly said.

And one more thing - the Greek government has replaced the heads of the three armed services with officers seen as more supportive of Mr Papandreou.

A military coup in Greece really would tip us from crisis into disaster...

07.20 In the early hours of this morning, Greek PM George Papandreou won the backing of his cabinet to push ahead with a referendum on the bail-out agreed last week.

He said he had been given:

QuoteA clear mandate and a clear message in and outside Greece on our European course and participation in the euro. No one will be able to doubt Greece's course within the euro.

Later today, he faces Chancellor Angela Merkel of Germany and French president Nicolas Sarkozy who have summoned him to talks in Cannes, ahead of the G20 summit which starts in the Riviera town tomorrow.

07.15 Yesteday's market sell-off continued in Asia, as fears intensified that Greece might reject an austerity plan and default on its massive debts.

Japan's Nikkei tumbled 2.2pc to 8,640.42, with sentiment further hit by data showing that US manufacturing grew more slowly in October, hampered by weak demand for exports. Australia's S&P/ASX 200 dropped 1.1pc.

However shares on Hong Kong's Hang Seng climbed 0.5pc and markets in mainland China rallied, after signs that inflation is cooling, meaning the Chinese government could loosen monetary policy.

There has been a wave of selling across markets this week, since Greek Prime Minister George Papandreou announced on Monday night that the country would hold a referendum on the eurozone bail-out.

The Dow Jones slid 2.5pc to close at 11,657.96 last night, while the S&P 500 lost 2.8pc.

07.05 Good morning and welcome back to our live coverage of the continuing global debt crisis. Log on throughout the day for the latest news and views.

Read all our latest news on the financial crisis, or take an in-depth look at events over the past month.

Debt crisis live: archive

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