14.11 An interesting question on an in-out referendum on the EU, which was side-stepped without a definite answer...
14.08 More from David Cameron, who is now taking questions:
Europe is changing, there's a change taking place as the countries of the eurozone follow the remorseless logic of having a single currency. My job is to make sure we ensure all the safeguards we need... so that our say in the single market is safeguarded.
Britain is not going to cede more powers to Brussels... I think there are powers that should be going in the other direction.
I completely understand why some people want an in-out referendum. some people just want to get out: 'stop the bus, I want to get out'.
We used to be part of those bailout schemes, and I got us out of those bailout schemes, and that's saved us real money.
14.00 On banking union, Cameron says he expects to see "enhanced cooperation" under existing treaties, so that will offer "lots of protection" for the single market. But a single European regulator is not something which the UK should be accountable to - that should only apply to the eurozone, not the EU, he says:
In my view that must be the Bank of England for our banks... rather than a single European regulator. It's never entirely clear how far these changes will go, exactly which treaty clauses will be used... that's one of the reasons that when you come to these summits you've got to be absolutely focussed on the text and what you're signing up to. We want a functional eurozone, not a dysfunctional eurozone, but we need those safeguards. Permanent vigilance is required.
13.54 A quick aside to the Libor scandal - David Cameron says that he'll ensure that FSA fines are used to benefit the taxpayer and not reduce future FSA payments by the banks.
13.53 He's said that he is against a larger EU budget:
What we need to do is not spend more, but spend better. I made it absolutely clear that the British rebate is not up for discussion.
13.50 David Cameron is now speaking in Brussels:
We have to stand behind our own banks, but I don't want British taxpayers paying for European banks.
13.24 Francois Hollande says that a financial transaction tax will be in place before the end of 2012, just in time for Christmas. He says that Germany strongly backs the plan, but that a rate hasn't yet been agreed on.
But what won't be ready by the end of the year is France's ratification of the fiscal pact, he adds...
12.54 There's another podium in Brussels, next to Merkel's, this one standing in front of a Union Flag, so we can expect a David Cameron announcement soon.
12.48 Merkel says that many countries had asked for the ESM's preferred creditor status to be kept intact, apart from in the case of Spain. She also says that conditions will still apply to any bailouts.
12.39 Merkel says that the EFSF will be used to recapitalise Spanish banks, then the ESM will take over later - without its preferred status (that is, being first in line to reclaim money in case of default). This is important, because it will reassure private investors that they won't be as likely to lose out. But this will only apply to Spain, warns Merkel, not other countries that seek help in the same way.
12.34 Angela Merkel is now giving a press conference:
We've had a debate that was partially controversial... but this doesn't come as a surprise.
12.21 A quick update on European markets, which are firmly holding on to the gains they made in early trading.
11.58 German lawmakers are - right now - holding a special meeting to discuss what the opposition Social Democrat party sees as a government U-turn on eurozone bailouts.
Just hours before a crunch vote by both houses of parliament on the EU fiscal pact and the permanent ESM bailout fund, the centre-left SPD party called for an extraordinary meeting of the parliamentary finance committee.
11.27 Simon Denham, chief executive of Capital Spreads, points out that Spain's 10-year bond yield is now floating around 6.55pc - not as low as could have been hoped for after an unexpected result from the EU summit - and no more sustainable in reality than 8pc:
The euphoria over the euro banking agreement has sent stocks higher but the shine seems to be fading as I write.
In reality the banking side was always the easier bit to the problem in that the banks are actual legal entities who have to operate in a fiscally responsible manner (don?t laugh) whereas national governments clearly do not.
The real question is still out there, namely the pooling of eurobond risk which the Germans are naturally averse to.
11.14 Eurozone consumer inflation held steady at 2.4pc year-on-year in June, keeping the door open for the ECB to cut interest rates. Christoph Weil, of Commerzbank, said:
We assume that the inflation rate will not continue its downward trend in the coming months. This is based on our forecast for the oil price. We think the recent fall of the oil price was exaggerated and expect the price for a barrel of Brent to exceed $100 again in the second half of the year.
Nevertheless, the ECB may react with relief to the recent decline of the inflation rate as it reduces the risk that the collective bargaining parties will assume higher inflation rates in their pay negotiations. Furthermore, inflation risks are currently low. In view of weak demand, companies are finding it difficult to raise prices.
There is thus no obstacle to an ECB rate cut from the side of inflation. We expect the central bank to lower its repo rate from 1pc to 0.75pc at its meeting next week.
10.56 More from Mervyn King: the UK economy is at risk of a "vicious circle" of reduced bank lending if banks' assets deteriorate. Uncertainty and tighter credit conditions have acted as "strong headwinds" to UK recovery.
10.53 Mervyn King, governor of the Bank of England, says that the problems in the eurozone are deep-seated and not something that UK authorities can fix. He adds that a Greek exit would "probably be manageable" for British banks.
10.52 We have a video for you from this morning's press conference with Herman Van Rompuy and Jos? Manuel Barroso.
10.46 So David Cameron is calling it a victory and claiming that he helped shoot down proposals that might have subjected the City to regulation under plans for a eurozone ?banking union?. But Bruno Waterfield says there's a bit more to it than that...
10.25 Our man in Brussels, Bruno Waterfield, brings us this update from the EU summit, which suggest that the discussion got rather heated last night:
David Cameron is declaring victory over Brussels proposals that all banks, in every one of the EU?s 27 countries, should be placed under the direct control of a powerful European ?banking supervision system?.
The Prime Minister, warning that he could block the use of the ECB as a eurozone bank regulator, had text deleted from the EU summit agreement after bad-tempered exchanges last night.
The summit text had said: ?Existing legislative props on bank resolution and deposit guarantees should be adopted by the end of year. Building on theses the commission will submit by the end of 2012 further legislative propsoals in a single European banking supervision system covering all banks, a European deposit guarantee scheme and a European bank resolution scheme.?
In a major blow for Michel Barnier, the French commissioner responsible for EU financial regulation, the move to a pan-EU system are scrapped after a row predicted by the Daily Telegraph yesterday.
Summit language encouraging eurozone members to ?deepen coordination of their economic policies? was also dropped.
10.19 Retail sales data out from Greece this morning shows a 13.5pc drop in April, month-on-month. That's an improvement on the previous month, which saw a fall of 16.2pc, but hardly worthy of celebration. In just two months that comes to almost an erosion of almost a third of retail sales...
10.02 While we're on the subject of the ECB, eurozone bank loans to the private sector contracted last month. The central bank's regular monthly money supply data showed that loans contracted 0.1pc in May after growing by 0.2pc in April.
09.53 The Greek bank jog (not quite a run) continues, with worried businesses and customers pulling their money out to invest somewhere they see as safer.
ECB data out this morning show that private-sector deposits in Greek banks fell almost 5pc in May after slight increases in the two previous months. The total fell to ?163bn from ?171.5bn. They are at their lowest level in six years.
09.24 David Cameron has spoken to the BBC on his way back in to the summit in Brussels this morning, saying that "important steps forward" were taken last night. He says more was needed for short term stability.
EU leaders will have filled up on strong coffee over breakfast - talks ended at 4.30 this morning after dragging on for more than 13 hours.
09.18 Some contradictory statements are emerging this morning. Angela Merkel says there will still be conditions to meet for countries which need bank recapitalisation, and that to be involved in the bond-buying programme there will still be troika checks. But Italy's PM Mario Monti says those who seek EFSF or ESM aid won't need to have troika oversight. He's also added that Italy doesn't intend to seek such help "at this time".
09.11 Fabrizio Gora tweets a picture of Libero's front page this morning, which is unlikely to please the German chancellor.
08.55 They say bad news comes in threes, and that'll ring true for Angela Merkel this morning. First Germany was knocked out of Euro 2012, then she was forced to back down at the EU summit and now German retail sales have dropped for a second month running in May. Sales unexpectedly fell 0.3pc from April.
08.34 Kathleen Brooks, research director at Forex.com, brings us her views on the EU summit deal:
Eurozone authorities have attempted to break the toxic link between banks and sovereigns. The move on Spain is extremely positive in our view. Although it doesn?t irradiate the problem of bad loans on Spain?s banks? balance sheets it does mean that banking debt won?t clog up Spain?s sovereign balance sheet that was relatively healthy before the banks started to fail. This should reduce Spain?s borrowing costs in the short to medium term.
The move on scrapping credit seniority for bailout loans to Spain?s banks is a very positive move to us as it encourages the private sector to invest in Spain and Italy?s sovereign debt.
But there are also problems, she warns:
The EFSF/ESM rescue funds only have ?500bn of available capital, yet the total liabilities on Spain?s and Italy?s balance sheets? top ?2.4 trillion... This could curb the market?s enthusiasm as we haven?t heard any signs that these bailout funds will be topped up.
08.18 European markets have surged in early trade after the news from the EU summit just a few hours ago. Futures were pointing to climbs across the board, apart from in Germany and France - but in the event even they've decided to join the rally.
08.01 The fake Angela Merkel has a knack for summing up the situation with a single tweet, and doesn't disappoint this morning.
07.30 European Council chairman Herman Van Rompuy seems relieved that a deal has been done. There were some worrying moments during last night's stand-off between Spain and Italy and Germany.
He said the aim was to create a supervisory mechanism for eurozone banks involving the European Central Bank to break the "vicious circle" of dependence between banks and sovereign governments.
We are opening the possibility to countries that are well behaving to make use of financial stability instruments in order to reassure markets and to get again some stability around some of the sovereign bonds of our member states. The aim is of course to make the euro an irreversible project.
07.15 Just as well for France that EU leaders have agreed a ?120bn growth pact, as the figures out today show first quarter growth stalled.
National statistics agency INSEE says its final estimate of GDP was unchanged quarter-on-quarter, confirming an initial estimate published last month. The eurozone's second largest economy grew just 0.1pc in the fourth quarter.
07.05 Yields on 10-year Spanish and Italian bonds fell to 6.48pc and 5.87pc respectively in early trading, after eurozone leaders agreed a plan to allow rescue funds to be used to stabilise debt markets and directly recapitalise banks. One trader said:
It's definitely risk on for now, but it looks like Germany have been rather backed into a corner and we'll have to see what comes out today.
German 10-year bond yields rose 10 basis points to 1.61pc.
06.45 Mario Monti, the Italian Prime Minister, celebrated the agreement as a ?very important deal for the future of the EU and the eurozone?. Bruno Waterfield writes:
He could not resist reminding Angela Merkel, the German Chancellor, that Italy had also won on the football pitch, by defeating Germany two goals to one for a place in the finals of the European Championship.
Here is a summary of what they agreed:
? Spanish banks will be recapitalised directly by allowing a ?100bn EU bailout to be transferred off Spain?s balance sheet after the European Central Bank takes over as the single currency?s banking supervisor at the end of the year.
? Relief for Spain was accompanied by a pledge to begin purchases of Italian bonds using EU bailout funds to reduce Italy?s borrowing costs with a lighter set of conditions, based on meeting Brussels fiscal targets rather than intrusive IMF oversight.
? A promise was also made to ?examine the situation of the Irish financial sector? offering possible relief to Ireland by relieving the government balance sheet debt burden.
? The Spanish bank bailout, to be agreed on 9 July, will initially use the euro?s European Financial Stability Facility (EFSF) before it is transferred into a new permanent fund later this year.
06.40 Despite apparent market optimism, some scepticism remains. Jackson Wong, vice president at Tanrich Securities in Hong Kong. said:
We don't expect a magical formula that can solve the problem right out from the EU summit. However, if we can see the stances from all the leaders, especially from Germany - that they are heading in the right direction - I think going forward, it should be OK.
Euro rise in Asian trading on news of the eurozone agreement. Graph: Bloomberg
06.38 The euro spiked against the dollar after news of the deal, and Asian stock markets rose sharply. Japan's Nikkei rose 1.4pc and Hong Kong's Hang Seng gained 2.2pc.
However, while the shares in London, Italy and Spain are expected to rise when market open on Friday, those in Germany and France look set to fall.
06.35 So, Monti and Rajoy got their way, with German Chancellor Angela Merkel retreating. Bruno Waterfield in Brussels sums it up succinctly, but with a warning:
06.34 It looks like those late night summits are back. Eurozone leaders agreed early this morning to take emergency action to bring down Italy's and Spain's spiralling borrowing costs and to create a single supervisory body for eurozone banks by the end of this year, a first step towards a European banking union.
It followed a tense first day at the EU summit, with Italian prime minister Mario Monti and his Spanish counterpart, Mariano Rajoy, refusing to sign off on a ?120bn growth package until EU paymaster Germany approved short-term measures to ease their cost of credit.
06.30 Good morning and welcome back to our live coverage of the European debt crisis.
Debt crisis live: archive
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