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Eurozone crisis live: Greek bankruptcy fears loom over EU summit

Lucas Papademos: Greece faces spectre of bankruptcy
Brussels hit by general strike
Spanish economy shrinks by 0.3%

9.28am: There’s widespread industrial action in Belgium this morning, as unions call a strike to mark today’s summit meeting.

The general strike — Brussels’ first in almost two decades – has forced the authorities to close down the country’s rail networok, and left many trams and busses without drivers.

As this photo shows, the normally heaving train platforms were bereft of commuters this morning.

Some international flights have been cancelled, while some bulk cargo terminals have been shuttered at the port of Antwerp.

The strike is designed to signal opposition to Belgium’s fiscal cutbacks. Philippe Dubois, a railway union member outside Brussels’ Midi station, told Reuters that:

We are angry because they want to attack our pensions. We want to make some noise.

9.12am: Now this is a little worrying — the index which tracks volatility in Europe’s financial markets has risen by almost 10% this morning.

The Euro STOXX 50 volatility index, seen as Europe’s yardstick of investor sentiment, jumped by 9.4% in early trading. That indicates that traders are more risk-averse (the higher the number, the greater the volatility).

Until today, the Euro STOXX 50 had been dropping steadily through January, reflecting hopes that the eurozone crisis was being resolved. At 26.6, the index is still rather low compared to the last few months — so not a reason to panic, more a sign of nervousness.

9.06am: Shares have fallen broadly in the first hour of trading in Europe, ahead of this afternoon’s summit.

The FTSE 100 has shed 49 points, or 0.87%, to 5683. Financial stocks are leading the fallers – with Barclays, Aviva, Lloyds Banking Group, RBS and Prudential all dropping by between 2% and 3%.

Spain’s IBEX is the worst performer of the major indices, down 1.3% following the news that the Spanish economy shrank by 0.3% in the last quarter (see 8.13am)

9.03am: Portuguese borrowing costs have hit all-time highs this morning, as fears grow that it will need a second bailout.

As Bloomberg’s Linda Yueh swiftly tweeted, the yield (or interest rate) on Portugal’s 10-year bonds is approaching 16% — twice the level seen as sustainable.

#Portugal bond yields hit new #euro era record highs at open: 10YR 15.8%, 5YR 20.8%

— Linda Yueh (@lindayueh) January 30, 2012

8.42am: Yanis Varoufakis, who runs the Department of Economic Policy at the University of Athens, has rubbished the idea that austerity will lead Greece to a return to growth.

Varoufakis told Radio 4′s Today Programme that the plan wouldn’t work:

Even if God and his angels were to descend upon Athens and put them in place.

Gabriel, Michael & Raphael would, at least, make a more impressive trio than the Troika who Athenians have grown used to seeing.

8.26am: If you missed Lucas Papademos’s warning last night, here’s how the Greek PM described the importance of agreeing a new package of financial support:

If this process isn’t successfully concluded then we face the spectre of bankruptcy with all the dire consequences for society that entails.

Papademos released the statement after meeting with the leaders of Greece’s three largest political parties. He said they were all in “complete agreement” with the government on continuing talks with private and international creditors.

8.13am: It’s official – Spain’s economy is shrinking.

Data released in the last few minutes showed that Spanish GDP fell by 0.3% in the last three months of 2011, compared with the pervious quarter. That’s the first contraction in eight years.

On an annual basis, Spanish GDP increased by just 0.3% over the year. That’s one of the weakest performances in Europe, underlining the challenge faced by its new government.

It’s the second blow to hit Spain in recent days — last Friday, unemployment smashed through the five-million mark, putting the jobless rate at 22.8%. More than half of 16-24 year-old Spaniards are out of work.

Confirmation that Spain is shrinking could give prime minister Mariano Rajoy more ammunition in his negotiations with the EU. Our Madrid correspondent Giles Tremlett reported on Friday that Rajoy is urging Europe to relax Spain’s deficit reduction targets.

7.55am: Here’s today’s agenda:

• Spanish GDP released: 8am GMT / 9am CET
• Italy auctions €6bn of five and 10-year bonds – from 10am / 11am CET
• Eurozone consumer confidence for January released – 10am / 11am CET
• EU leaders begin summit talks in Brussels – 2pm GMT / 3pm CET

7.45am: Good morning, and welcome to another day of live coverage of the European financial crisis.

EU leaders are heading towards Brussels today for their first summit meeting of 2012. On the to-do list: discussing ways of catalysing economic recovery in Europe, and signing off two new treaties — creating the fiscal compact that will tie eurozone members to tougher budget rules, and establishing the European Stability Mechanism, Europe’s new bailout vehicle.

Overshadowing the summit, though, is Greece. Although the deal with its creditors is (we hear) close to being finalised, there is growing concern that the country’s second bailout needs to be increased. Can eurozone governments be persuaded to put their hands into their pockets again?

The stakes are high — prime minister Lucas Papademos warned last night that Greece was on the brink of disaster, and would plunge into bankruptcy unless the country’s international backers agreed to a new bail-out.

Italy will also be under strutiny — it aims to sell up to €6bn of long-term debt today. Will investors show faith in Mario Monti?

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