Debt crisis: live

11.50 Spanish shares are still up, but not nearly as spectacularly as first thing this morning, when they jumped close to 6pc. The IBEX index is now up 2.5pc, while yields on 10-year government bonds have gone back above 6pc.

David Jones from IG Index explains why the 'bailout bounce' will only be temporary:

11.45 The OECD has some fairly gloomy predictions out this morning - the economic think tank's latest leading indicators show the pace of growth in China and India starting to falter and the eurozone economy continuing to suffer as a result of the debt crisis.

The OECD said its composite leading indicator (CLI) for China, which provides a measure of future economic activity, slipped to 99.1 from 99.4 in April, falling further below its long-term average of 100.

The CLI for India also showed signs of weakening, dropping to 98.0 from 98.2, again below the 100 average.

The euro area, meanwhile, remained stable at 99.6, as did France, while Italy inched down to 99.1 from 99.2, as ongoing debt troubles in Europe continued to keep economic growth below long-term trend.

The CLI for Germany was also unchanged at 99.4. Britain's, however, inched up to 99.8 from 99.7 but remained below its long-term average.

11.30 As reported in our 07.40 post, George Osborne has come under fire from some MPs on his own side for blaming the eurozone crisis for the continuing recession in the UK.

Our commentator Jeremy Warner says in fact neither the eurozone, austerity measures nor lack of supply-side reform are to blame.

The true reason why Britain's economic recovery has lagged other G7 nations lies somewhere else ? it's almost wholly down to still subdued household consumption. Household spending has failed to recover as robustly from the post Lehman crash as in other major economies.

The current process of adjustment in household spending back to a more sustainable, income dependent, path has in all probability still got several more years to run, so we can expect demand in the UK economy to remain weak for quite a while yet, almost regardless of what happens in the eurozone and the degree of structural reform the Government engages in.

Up to a point, Osborne is right that there is little he can do about the present economic funk, but he's chosen the wrong target as an alibi. It's not the eurozone, much of which after years of living high on the hog actually faces the same problem as the UK in adjusting to a lower overall standard of living, but the toxic legacy of over indebtedness left him by the last Government.

11.20 Cold water has been poured on Ireland's hopes for a renegotiation of its bailout - also designed to row out banks which had taken on too much debt in a property boom - following the agreement with Spain.

The Irish Times reports this morning that because the money will not go directly to Spain's banks but be guaranteed by the government, it does not open the way for Ireland to receive direct bank aid too, removing onerous terms on the Irish state.

11.05 Questions are already being asked about Italy, following Spain's agreement to a bank bailout over the weekend. And Italian politicians are already giving the idea short shrift:

Italy has "already done what was needed to save itself," said industry minister Corrado Passera.

11.00 Well, that didn't last long - Spanish bond yields are now back over 6pc, trading at 6.2pc now.

10.00 The price of oil has also had a boost today - Brent was up more than $2 a barrel at $102.21 in morning trading after the larger-than-expected bailout for Spain.

09.40 Fidelity's David Simner, portfolio manager of the Euro Bond Fund, explains why the markets have rallied on news of a Spanish bank bailout, but also sets out why there are many reasons to remain cautious:

This weekend's announcement is positive for several reasons. It will enforce the long-awaited external scrutiny of Spain's banks. This will remove a significant element of economic uncertainty once a final clean-up cost is arrived at.

The funding will be provided at below-market rates and, we assume, long maturities, which takes the heat off Spain's regular sovereign issuance. It is a signal of intent by eurozone powers that they want to stop the rot by pre-emptively deploying firewall resources. This raises hopes for progress at the end-of-June European Council meeting.

On the other hand, Spain's banks are only one layer of the economy's shaky foundations. It still has the highest unemployment and the third widest fiscal deficit in Europe in the context of a painful recession. The current government has a poor track record of crisis management and data quality has been poor.

The funding provided by the EFSF/ESM will inflate the government's debt and there is an open question of creditor subordination.

09.10 Italy's latest GDP figures are out - the final revision - and show the economy shrank 0.8pc in the first quarter of 2012, and contracted by 1.4pc year-on-year.

08.45 Good news! Spain's bail-out already has it's own abbreviation - the 'spailout' according to Blake Hounshell, the editor of Foreign Policy. For everyone who was tiring of Grexit...

08.35 Markets have certainly taken heart from the news Spain has agreed on an EU bailout for its banks, however market watchers are highly sceptical the rally can last - even until the end of today.

The BBC's Robert Peston has called the move "another very large piece of sticking plaster but not a permanent solution", while Sky's economics editor Ed Conway has a number of questions, including whether Ireland will now be seeking a renegotiation of its bailout terms, which were far more stringent than Spain's, and whether this is a pre-emptive move by Spain to protect itself in case of a Greek eurozone exit after this coming weekend's elections.

08.10 And it's not just good news for stock markets, in bond markets, Spain and Italy's borrowing costs have fallen.

The yield on 10-year Spanish government bonds fell below 6pc, down 0.2pc percentage points to 5.96pc, while Italy's yield fell 0.14 percentage points to 5.6pc.

08.05 European shares have followed Asian markets higher at the open:

The FTSE 100 was up 1.6pc at 5,524 points shortly after opening, while Spain's IBEX jumped more than 5pc.

07.50 Joaquin Almunia, the EU Competition Commissioner, has spoken about Spain's bank bailout this morning - and it doesn't look good for people hoping Spain has not handed over any financial independence with the move.

The banks which receive aid will have to present restructuring plans to to EU, Mr Almunia said this morning, and there will also be a visit of the "troika" - the EU, the European Central Bank and the International Monetary Fund - to Spain.

07.40 George Osborne has been ticked off by Tory MPs for using the eurozone crisis as an "alibi" for Britain's own economic problems.

As reported over the weekend, the Chancellor said the debt crisis on our doorstep has "killed off" the recovery. However, some MPs said there was still plenty the UK could be doing to help itself.

Rowena Mason reports:

Mr Osborne delivered a stark message that the Government is powerless in the face of ?headwinds? from Europe, as Spain became the fourth country to require a multi-billion pound bail-out.

But he was accused of making excuses for Britain?s ?awful economic performance?.

David Ruffley, an MP and member of the Treasury Select Committee, urged the Chancellor ?radical action? to get the economy growing.

?Of course eurozone meltdown is damaging business confidence but this must not be used as an alibi for no growth in the UK,? he said.

?We can?t just say the eurozone is destroying confidence in the UK and nothing can be done.?

07.25 In the spirit of full transparency, political blogger Guido Fawkes, as mentioned in the 06.58 post, has refuted our claim that he may have overdone the euro gloom and has even put his money where his mouth is:

07.10 Time for a look at the specifics of the ?100bn bank bailout which Spain has been offered by the EU.

The full terms were not available last night, but Spanish officials said the loans would cost the country 3pc a year in interest, rather than the rates of 6pc-7pc which Spain is paying to borrow from bond markets.

The EU indicated over the weekend that the money for the loans would come from its bailout funds, but not which ones. Using the temporary EFSF (European Financial Stability Facility) would have to be voted for by individual member states, according to Dutch PM Mark Rutte.

The permanent European Stability Mechanism (ESM), which comes into force in July, could be used instead, however it has its own problems, as Louise Armistead reports:

Since ESM debt would rank above private bondholders, loans from this fund could make Spain even less attractive to private investors on the capital markets.

06.58 So, markets up, euro up - for the short-term at least things are looking a little brighter. It seems Guido Fawkes and City AM editor Allister Heath overplayed the "eurogeddon" angle last week:

06.55 The FTSE 100 is expected to open 2pc higher at 8am, with the Dow up 1.2pc this afternoon.

06.52 Italy is holding a bond auction later today. Will be interesting to see how it fares after the Spanish bank bailout.

06.50 Ambrose Evans-Pritchard maintains that Europe's democracies must not subcontract their destiny to the Bundesbank:

The weekend deal is a fresh evasion by EU leaders. Another loan package will be inflicted on another country that cannot afford more debt, though the stakes are higher this time.

Europe?s democracies can stop this destructive course before it is too late. They do not have to subcontract their destiny to the Bundesbank. The broad Latin bloc commands the majority votes to compel the ECB to act as lender of last resort and reverse monetary contraction. They should use that power.

If such a confrontation causes Germany and its satellites to storm out of EMU in a huff, that too is a solution of sorts. Monetary asphyxiation would end. The Latin euro would weaken to equilibrium levels. Capital would flow back into southern Europe once the boil had been lanced.

Just do it. Call the German bluff. One bound and you are free.

06.45 The Sunday Telegraph's James Quinn believes the bailout won't end Spain's property nightmare:

The situation that is now playing out in Spain is one that risks the very firmament of the entire European financial sector. Although at the time of writing the early stages of a plan to rescue the Spanish banking system appeared to be coming together, there is no guarantee that the capital that will be injected will be enough.

The Spanish predicament is, as was the case in the US with the subprime mortgage collapse that fuelled the 2008/9 financial crisis, property-led.

Recent data from the Knight Frank Global House Price index shows that Spanish residential properties fell by 7.3pc in the year to the end of March. Official Spanish data state that prices are down 20pc from the peak, but those figures are based on bank valuations, rather than actual sales.

Anecdotal evidence suggests that the fall from the top of the market is closer to 30pc, but how much further can prices go?

06.42 Asian markets and the euro have jumped this morning following the bailout.

The euro rose nearly 1pc to $1.26694, its highest level since May 23, while Japan's Nikkei average added 2pc, after sagging 2.1pc on Friday.

06.40 Mr Rajoy said he was not pressured into requesting aid, saying he was the one who had pressed for this line of credit, insisting it was different than bailouts taken by Greece, Ireland and Portugal because their lifelines include strict outside control over public finances - and Spain's does not.

Spain admitted last week that its high borrowing costs of between 6pc and 7pc have meant it was effectively locked out of the money markets.

Spain's deep economic misery will get worse this year despite a financial lifeline to save its banks, Mr Rajoy said.

This year is going to be a bad one: Growth is going to be negative by 1.7pc, and also unemployment is going to increase.

06.35 No prizes for guessing what the big news of the weekend was. Spain will be given a ?100bn bailout for its struggling banks, with PM Mariano Rajoy saying the move boosted the credibility of the euro.

If we had not done what we have done in the past five months, the proposal yesterday would have been a bailout of the kingdom of Spain... Yesterday, the credibility of the euro won, yesterday the future won, yesterday, the European Union won.

06.30 Good morning and welcome back to our live coverage of the European debt crisis.

Debt crisis live: archive

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