Europe- Latest news from most of the European countries

? FTSE 100 at new low for 2012
? Asian shares fall sharply
? Wolfgang Schäuble sees 12-24 months of turmoil
? Spain hit by banks downgrade...
? ... and rise in bad bank debts

10.55am: It's emerged this morning that German chancellor Angela Merkel made a telephone call to the Greek President Karolos Papoulias this morning, to discuss the crisis.

A German government spokesman has just confirmed the call, explaining that Merkel "expressed the German government's wish for a functioning government in Greece".

Seperately, a spokeswoman for the finance ministry has been quizzed about this morning's report (see 10.15am) that the ECB has been working on contingency plans in case Greece leaves the eurozone. No details emerged, but she did say that:

Our citizens expect us to be prepared for every eventuality.

10.15am: EU trade commissioner Karel De Gucht has confirmed that the European Commission and the European Central Bank are working on an emergency scenario in case Greece should leave the euro zone.

While we'd rather assumed that contingency work was underway, I'm not aware of an official stating it before (shout out if you know better).

De Gucht made the comments in an interview with Belgian newspaper De Standaard, arguing that a 'domino effect' from a Greek exit could be contained:

Both within the European Central Bank and the European Commission, services that are working on emergency scenarios in case Greece doesn't make it.

De Gucht declined to give details, and added that he still expects Greece to remain in the euro.

9.49am: In the financial markets, the FTSE 100 remains sharply lower, down 53 points at 5285, at its lowest point since 30 November.

This moves the UK blue-chip index deeper into 'corrrection' territory, from its recent high of 5965 in mid-March.

The German DAX and French CAC markets are also still in the red, both down around 0.6%.

But surprisingly, the Spanish stock market is actually up. Led by Bankia, whose shares have surged by 28% this morning. Quite a turnaround, following yesterday's rumours of a bank run. Other financial stocks are also now up, despite Moody's volley of downgrades last night.

That follows a report that Goldman Sachs has been hired to value Bankia ? which could prelude a break-up.

UPDATE: A couple of City types have also mentioned a rumour that Spain might impose a ban on short selling (selling stocks which you don't actually own). Nothing official though.

9.35am: The crisis in the Spanish banking sector comes nearly four years after Santander was playing a 'white knight' role during the UK's own banking crisis.

Our banking expert Jill Treanor comments:

Interesting times for Santander UK. This was the bank that the Labour government turned to during the 2008 crisis to take on Bradford & Bingley savers. It also bought Alliance and Leicester just before the crash.

Now, unrelated to last nigh's downgrade, its attempts at a stock market flotation - earmarked for two years ago - are now pushed back until at least next year. Even so, it still has a strong rating and has not been downgraded as much as the overall group.

9.13am: The proportion of bad debts sitting on the books of Spanish banks has risen to its highest level since August 1994.

Bank of Spain data showed that the bad loans rate across the Spanish banking sector rose to 8.37% in March. The number of loans falling into arrears increased by ?1.6bn to ?148bn.

That underlines the thinking behind Moodys' downgrades last night ? Spain's banking sector is stuffed full of loans that turned sour once the property market crashed.

Those bad debts could grow significantly if the Spanish economy deteriorates, making it even harder for the Madrid government to recapitalise its banks and put them on a sound footing. As Nicholas Spiro of Spiro Sovereign Strategy points out:

Spanish bank restructuring is a moving target: the deeper the downturn, the bigger the scope for a further deterioration in asset quality.

8.55am: France's new prime minister had stern words for European leaders this morning for their failure to help Greece through the financial crisis.

Jean-Marc Ayrault, a former German teacher, added his voice to the chorus calling for a new growth agenda. Ayrault urged Brussels to put spare structural funds to work to help the Greek economy return to growth:

We waited too long before helping Greece. This has been going on for two years now and only gets worse....

Tough talk, but not exactly unfair.

8.36am: German finance minister Wolfgang Schäuble said on Friday that the market turmoil surrounding the euro zone crisis could last another two years.

Speaking on France's Europe 1 radio after Asian markets had tumbled, Schäuble said:

Regarding the crisis of confidence in the euro ... in 12 to 24 months we will see a calming of the financial markets

And that, it seems, is Schäuble being optimistic. He also appeared to warn Greek voters not to trust parties who promise to renegotiate Greece's financial progamme.

It's up to Greek politicians to explain the reality to their people and not make false promises.
We want Greece to stay in the euro but meet its commitments and that's a decision that's up to the Greeks.

8.27am: Santander UK, which was downgraded one notch by Moody's last, is stressing this morning that the downgrade won't affect its business.

A spokesman said:

The change to Moody's credit rating of Santander UK plc has no impact on our businesses in the UK or our plans for future growth. Santander UK plc is an autonomous subsidiary of the Santander Group, with more than 90% of its total assets held in the UK and a Eurozone sovereign exposure of less than 1% of assets.

Santander UK is a key player in the British financial sector, having acquired Alliance & Leicester, Abbey National and Bradford and
Bingley. It now has a higher credit rating than its parent company, following Banco Santander's three-notch drubbing.

8.10am: European stock markets have fallen at the start of trading, with Spain's IBEX showing the steepest losses.

The IBEX shed 128 points, or 2%, at the start of trading, hitting a new nine-year low of 6409 points. That follows Moody's downgrading much of the Spanish banking sector last night (see 7.49am)

In London, the FTSE 100 is down 50 points at 5289, a new low for the year. Just four shares have risen, while mining companies and banks are leading the fallers. Rio Tinto, Xstrata, Lloyds Banking Group and Barclays are all down at least 2.5%.

It's a similar tale across Europe, with the Italian FTSE MIB down 1.5% and the French and German markets dropping around 1%.

There's a really downbeat mood in the City this morning. As Clive Duckitt, director at Fyshe Horton Finney, commented:

There seems little respite from the gloomy news that has engulfed equity markets in recent weeks.

7.56am: Risk aversion has driven the US dollar up this morning, as traders look to put their money somewhere safe.

This has pushed the euro down to a new four-month low of $1.2649 against the US dollar.

It has also pushed the oil price to its lowest level of the year, with a barrel of Brent crude dropping $1 to $106.40. That might actually bring some relief to the global economy, as high fuel and energy prices have been blamed for pushing up inflation.

7.49am: Moody's decision to downgrade much of Spain's banking sector last night has put country's financial problems under even more scrutiny.

Some downgrades had been anticipated, but the scale of the move is still quite dramatic ? with 16 banks downgraded in total and some, including the giant Santander, by three notches.

Moody's blamed the weak Spanish economy (currently in recession), and the Madrid government's reduced ability to support troubled lenders, given its own problems.

Amidst the ongoing euro area debt crisis, the Spanish government's rising budget deficit and the renewed recession, sovereign creditworthiness has declined.

Spain's banking sector was also reeling from reports, officially denied, that worried customers were pulling deposits out of Bankia.

As analysts at Investec comment, "It's not going to go down in history as a great day for Spanish banks."

7.38am: Asian markets were hit hard overnight by fears over the health of the Spanish banking sector, and the looming threat of a eurozone break-up.

In Tokyo, the Nikkei fell by 2.99% at 8611.31, its lowest level since January. The index has now fallen for seven weeks in a row -- its worst performance since 2001. Hong Kong's Hang Seng index is down -2.69%.

Ben Kwong, Hong Kong-based chief operating officer at KGI Asia, called it straight:

It's really bad....

Fears of a Greek exit from the euro zone and the negative consequences from that are prevailing.

Australian stocks were also hit overnight, particulaly banks and miners (with National Australia Bank falling 4.23%, and Rio Tinto down 5%). Warnings that China's economic growth might be lower than expected this year also hit sentiment.

Chris Weston, institutional trader at IG, was also in bleak mood, predicting a "dark and tiresome open" in European markets.

The world is bereft of good news

7.35am: Good morning, and welcome to our rolling coverage of the eurozone financial crisis.

Not that there's much 'good' about this morning. The escalating crisis having sparked heavy losses in Asian stock markets overnight, and another sell-off expected in Europe today.

There are two factors behind the sell-off: Fitch downgrading Greece yesterday evening on concerns that it might soon leave the eurozone and default, and Moody's decision to downgrade 16 Spanish banks.

Those two developments capture the essence of the crisis today ? Greece pushed to the brink of euro exit by austerity, a long recession and an huge debt mountain, and Spain battling to avoid the same fate. We'll be watching both countries today.

World leaders are gathering in the US for the G8 summit, facing the growing threat of a global downturn. Barack Obama is expected to demand that Europe bows to pressure at home and abroad with new policies to boost growth.

Germany to be urged to ease austerity during G8 talks as fears of global recession grow

Barack Obama is to put pressure on Germany to ease the pain of austerity with policies to boost growth, as he uses two days of talks with the G8 industrial nations to warn Europe that it needs to act swiftly to spare the world economy from a second deep recession in four years.

Prior to the G8 summit at Camp David this weekend, a warning from the ratings agency Fitch that Greece's days in the single currency could be numbered heightened fears in Washington that the worsening crisis in the eurozone poses a threat to America's fragile recovery and President Obama's re-election chances.

Obama will welcome the new French president, François Hollande, as a potential ally in his push for Europe to follow the US in giving a higher priority to expansionary policies, and as a counterweight to the German chancellor, Angela Merkel.

Obama can expect support from David Cameron, who told Merkel and Hollande on Thursday that eurozone leaders must embark on a series of urgent steps to prop up the single currency if a major implosion across the continent is to be avoided.

In a video conference with fellow EU leaders, the prime minister warned of a "remorseless logic" which dictates that struggling members of a single currency are supported by stronger members.

"The prime minister emphasised the importance of Greece and the eurozone taking decisive action to ensure financial stability and prevent contagion," a Downing Street spokesperson said. The video conference included Mario Monti, the Italian prime minister, José Manuel Barroso, the European Commission president, and Herman van Rompuy, president of the European Council.

Investors again turned to safe havens, fearing political chaos and economic collapse in Greece having knock-on effects for the global economy. Spain was the main focus of concern, amid reports ? denied by the economy minister ? of a run on Bankia, the country's fourth-biggest bank. Fitch waited for European markets to close before downgrading Greece's credit rating from B- to CCC.

"The downgrade of Greece's sovereign ratings reflects the heightened risk that Greece may not be able to sustain its membership of economic and monetary union (EMU) ... In the event that the new general elections scheduled for 17 June fail to produce a government with a mandate to continue with the EU-IMF [International Monetary Fund] programme of fiscal austerity and structural reform, an exit of Greece from EMU would be probable," Fitch said.

Leaders of the west's most powerful economies have been meeting for informal talks every year since the oil shock of 1973 brought an end to the postwar boom, and while Obama is not expecting any major decision to emerge from Camp David, it will be a chance for the Americans to vent their frustration that Europe has failed to find a lasting solution to its debt crisis, which is now in its third year.

In Greece, there were hopes that the deposit outflows from banks had reduced. But Stuart Gulliver, chief executive of Britain's biggest bank, HSBC, said: "We're in a worse place than we were a week ago. It remains a very difficult thing to call. I think the second [Greek] election in June will be a referendum on whether to stay in the euro. A month is a very long way away. We are now seeing price action that is consistent with capitulation."

Gulliver said if Greece left the eurozone, a firewall would need to be erected around Spain. If there was a run on banks in Greece, it might not be possible to wait for the elections on 17 June. He said his biggest worry "is absolutely how the eurozone plays out ? whether Greece stays in, whether firewalls are high enough to protect Spain and, frankly, whether markets take things into their own hands before 17 June".

Alistair Darling, Labour's chancellor at the time of the Lehman Brothers collapse, said: "From my own experience, these things can blow up in a matter of hours. The slow bleeding of Greek banks should worry everyone. Europe for the last two years has been running round like headless chickens. It's no wonder people now think things will go wrong."

National Audit Office raises questions about Treasury decision to split the Newcastle-based bank in two in 2009

Taxpayers face losses of at least £2bn on the continued state ownership of Northern Rock, the National Audit Office (NAO) has concluded as it raises questions about the decision by the Treasury to split the Newcastle-based bank in two in 2009.

The lender was split into Northern Rock plc, which resumed lending and was sold to Virgin Money at the start of this year, and Northern Rock Asset Management, the "bad bank" which remains in public hands.

The NAO agrees the sale to Virgin was the best way to prevent more losses and concludes that UK Financial Investments (UKFI), which controlled Northern Rock from 2010, had handled the sales process well.

But it said the Treasury, when Labour's Alistair Darling was chancellor, "would have benefited from more effective arrangements for internal challenge of its plans in 2009" to split the bank up.

Under the terms agreed with the European Commission to split the bank, at least 50% of Northern Rock plc had to be sold by a by a "confidential deadline" of 31 December 2013, the NAO said.

But while the spending watchdog points out that the Treasury did not consider alternatives to splitting Northern Rock, it acknowledges that decision to create a new mortgage lender was taken at a time when lending was falling and that the rejuvenated lender provided 22% of all net lending on mortgages during 2010-11.

It said: "The alternative of selling the deposits and closing down the business was, however, unlikely to have been significantly better in financial terms and would not have delivered mortgage lending."

Amyas Morse, the auditor general, said: "Amidst the serious economic turmoil of 2009, it was a reasonable to create Northern Rock plc to support mortgage lending. No alternative was likely to have been significantly better, but the Treasury committed itself before looking in detail at the possible consequences for the taxpayer.

"A sale of Northern Rock plc at the earliest opportunity was the best option to minimise losses on the £1.4bn of public money invested in the bank."

However, he said the continued state ownership of the "bad" bank would present costs for the taxpayer: "Most of the former Northern Rock's assets will be in public ownership for many years to come and there could be a net cost for the taxpayer of some £2bn by the time these assets are finally wound down."

This is based on assumptions that a private investor would demand a higher return on its investment of the 3.5% to 4.5% which UKFI has assumed would be a return for the Treasury.

"Applying a higher discount rate of 6% a year to the cash flows implies that there may be a net present cost for the taxpayer of some £2bn by the time the assets are fully wound down," the NAO report says.

Margaret Hodge, the MP who chairs of the public accounts committee, said: "Given the scale of the crisis, we are fortunate that the net present cost to the taxpayer is potentially not more than £2bn. But this is perhaps more by luck than good judgement.

"Although forced to act swiftly at a time of great financial instability, the Treasury took a big risk with taxpayers' money by going ahead with the decision to split the bank without undertaking due diligence or carrying out a proper analysis of the potential consequences for the taxpayer."

Prime minister launches Can Parent initiative to offer guidance and says he will push for childcare tax breaks

Parenting classes should be taken as seriously as driving lessons, David Cameron will declare as he announces measures to help the "nation-builders" raising Britain's next generation.

The prime minister, whose Can Parent initiative is allowing parents to fund classes through £100 vouchers handed out at Boots in some areas, said his plans represented the "sensible state" rather than the nanny state. The parenting classes in 10 two-hour sessions will offer advice on nutrition, behaviour and development.

Cameron made it clear on Thursday that he would like to introduce tax breaks for childcare. He reportedly told a Manchester businesswoman after making a speech in the city that he was "hugely attracted to the idea of making childcare tax allowable".

The prime minister will launch a strong defence of parenting classes. "It's ludicrous that we should expect people to train for hours to drive a car or use a computer but, when it comes to looking after a baby, we tell people to just get on with it," he will say.

Cameron, whose late son Ivan was severely paralysed, admits he would have appreciated guidance: "I would have loved more guidance when my children were babies. We've all been there when it's the middle of the night, your child won't stop crying and you don't know what to do

"Parents are nation-builders. It's through love and sheer hard work that we raise the next generation with the right values. That's why this government is doing everything possible to support parents. This is not the nanny state ? it's the sensible state.

"To those who say that government should forget about parenting and families and focus on the big, gritty issues, I'd say these are the big, gritty issues. Families don't just shape us as individuals, they make a stronger society. That's why supporting families is right at the top of our agenda ? and I'm going to make sure it stays that way."

Parenting classes will take place as pilot schemes, backed by a new website, in Middlesbrough, Camden in north London and in High Peak, Derbyshire. A relationship support service will be piloted in York, Leeds, north Essex and in some London boroughs from July for all expectant parents and those with children up to the age of two.

The idea, drawn up by the prime minister's departing policy guru Steve Hilton, is one response to the riots of last summer.

Frank Field, Labour's former welfare minister, previously proposed parenting classes in a report for Cameron in December 2010. Field said they should be routinely offered to new parents. They "should be seen as something normal to do, rather than remedial, or something only for low income families".

Field wrote: "Poor parenting exists across the income distribution, but tends to have less of an impact on better-off children where other factors provide greater protection against poor outcomes."

He said that children's centres and home visitors should encourage parents to attend classes "as a matter of course". Health visitors should offer "to sign them up as a matter of routine, initially targeting this on those most likely to benefit".

Three-man crew aboard fishing boat the Purbeck Isle have not been seen since leaving port on Thursday morning

A major search operation is under way for a missing fishing boat and its three-man crew after it failed to return from a trip off the Dorset coast.

RNLI lifeboats, coastguard helicopters and a Royal Navy warship are involved in the hunt for the vessel, which was reported missing at around 6pm on Thursday.

The Weymouth-based fishing boat, the Purbeck Isle, has not been seen since leaving port on Thursday morning and cannot be contacted, the Maritime and Coastguard Agency said.

Cindy Rodaway, watch manager at Portland coastguard, said: "The coastguard helicopter commenced a search from the air of known fishing grounds of this vessel as soon as we were alerted.

"We have also searched utilising the skills of the lifeboat crew and the crews of the Navy warships and the electronic search aids at their disposal."

Weymouth all-weather lifeboat, the Ernest and Mabel, launched at 7.15pm on Thursday and is still searching, along with the Lyme Regis in-shore lifeboat, the Spirit of Loch Fyne, which set out just after 11pm.

Additional shoreline searches of the coast to the west of Weymouth are also being carried out.

The search is being assisted by HMS York, a Type 42 destroyer, the Royal Fleet Auxiliary Wave Ruler, and US navy supply vessel 2nd Lt John P Bobo.