• EFSF sells €1.5bn of short-term debt
• €501.9bn stashed with the European Central Bank
• EFSF boss: S&P downgrade shouldn't matter
• German economic sentiment jumps by record amount
• Today's agenda
• Live-blogging now: Graeme Wearden
Time for a quick look at the financial markets, where all is calm.
The FTSE 100 remains in positive territory, up 48 points at 5705 (up 0.85%).
European markets are also posting gains, with the German DAX up 1.8% and the French CAC nearly 1.5% higher.
Yusuf Heusen, sales trader at IG Index, said traders had reacted with "complete indifference" to S&P's downgrades. Instead, the news overnight that China's economy grew faster than feared is pushing shares higher.
Suspect that it wouldn't take much to pop this optimism - a few negative headlines out of Greece usually does the trick....
Don't believe anyone who tells you that Mario Draghi has joined Twitter today - he's not.
But a spoof account did roar into life this lunchtime, causing a brief flurry of excitement in the twittersphere.
Billed as "MARIO DRAGHI, President of ECB. Official Twitter Account", @MarioDraghiECB swiftly fired out two tweets:
@MarioDraghiECB: Welcome to my Official Twitter Account! Mario Draghi
followed by:
@MarioDraghiECB: I confirm: the situation is very grave, we are close to a real tragedy for European economy
Now, when it comes to Twitter it pays to be cautious, so your humble correspondent buzzed the European Central Bank - which just confirmed that it's a hoax.
#endofstory
Christophe Frankel, the deputy CEO at the EFSF, has described today's auction of six-month bills as a 'success'.
He also declared that the EFSF will keep selling this kind of short-term debt (despite concerns [please see last post] that the Facility should really be using long-term bonds to fund bailed-out states.]
Frankel said in a statement that:
The success of today's auction confirms investors' confidence in EFSF as a high quality issuer. As we establish our short-term bill programme, we will now be holding regular auctions focussing on 3-, 6- and 12-month tenors.
The European Financial Stability Facility has succeeded in selling €1.5bn of short-term debt.
In its first test since being downgraded by S&P last night, the EFSF found buyers for new six-month bills to fund the bailouts of Portugal and Ireland.
The average yield on the sale came in at 0.2664%, and the EFSF received total bids for €4.6bn of bonds (so the auction was significantly oversubscribed).
In comparison, France yesterday paid an average yield of 0.295% for an auction of its own six-months bills.
So you could argue that the EFSF is seen as an even safer bet than France. Certainly, the S&P downgrade hasn't alarmed bond-buyers.
UPDATE:
I'm indebted to economist Shaun Richards for reminding me that the EFSF only began selling such short-term debt last month [which is why we can't compare today's yields to a previous sale].
The bailout fund took the decision after it was forced to buy some of its own debt at an auction of 10-year bonds, due to lack of demand.
As Shaun points out, the EFSF now "finds itself issuing six-month paper when it intended much longer...."
The Athens transport system has been brought to a halt today as workers hold a general strike.
Thousand of protesters aligned with communist backed unions are demonstrating in Athens over government plans to further roll back wages and labour rights. The industrial action -- the first of 2012 -- has been timed to coincide with the return of technical teams from the European Union, the IMF and the ECB.
The walkouts across the transport sector have caused massive transport disruption in the capital -- Helena Smith, our Greece correspondent, reports that travellers arriving at Athens International Airport were forced to cough up taxi fares into town after drivers on the underground and bus system joined the walkouts.
The disruption is making the EU/ECB/IMF teams despair. One senior official said.
It is as if unions are bent on bringing this country to its knees... Don't they understand that we are all headed for the abyss if Greece goes down?
Mohamed El-Erian, head of PIMCO (the world's biggest bond fund) has called for Greek lenders to accept a more severe haircut on the bonds - as Greece heads closer to the threat of a disorderly default.
El-Erian joined the ranks of experts arguing that private sector creditors need to take bigger losses, otherwise Greece will never get its debt pile in order and return to growth (our Athens correspondent, Helena Smith, reports).
Under the current proposal where creditors take a 50% haircut, around €100bn will be sliced off the country's public debt. The aim is to cut Athens' debt mountain down from 160% of GDP to 120% of national output by 2020.
El-Erian criticised this plan in an interview carried in today's Kathimerini newspaper, saying:
According to our analysis, 50% is not enough for Greece to restore credibly the conditions for medium-term debt sustainability and economic growth.
A 50% haircut would still leave open too many questions about Greece's
economic and financial outlook. What is absolutely critical for Greece and its official creditors, including the European Central Bank, is to ensure that the objective of a sustainable debt stock is paramount.
If Greece can't agree a deal soon, it will run out of time to receive further rescue funds from the EU, IMF and the ECB.
Over in parliament, Sir Mervyn King is discussing how to improve financial stability in the UK.
My colleague Phillip Inman explains:
A new report by the Bank of England argues there should be oversight of the government's Financial Policy Committee by a group of independent non-executive directors.
This sub committee would review how the board worked and whether it was considering all risks to the financial system. The Treasury Select Committee previously recommended the Court of the Bank of England carry out the oversight role.
Bank of England governor Mervyn King said it would be wrong for the people running the FSB also sitting on the oversight committee in their role as members of the Court.
Quite dry stuff, but it's turned into something of a ding-dong. Jesse Norman MP is in combative mood and castigates King for taking a long time to respond to the select committee's own report last year.
"It is disrespectful to the committee to allow only one or two days of parliamentary time to consider the Bank's proposals," Norman said.
The Bank of England's document says oversight committee should only look at the processes of the Financial Policy Committee in retrospect and not "second guess" decisions or review them at the point they are made.
Several MPs are distressed that the FPC could make a series of poor decisions and only face a slap on the wrist several months or a year down the road.
We'll have a full story on this row later today.
Economic sentiment in Germany jumped by a record amount last month, in another sign that Europe's biggest economy is dodging the worst impact of the eurozone crisis.
The ZEW survey (which is closely watched in the City) came in at -21.6 points, up from -53.8 points in December.
ZEW [which stands for Centre for European Economic Research] said this was the biggest rise in the history of the index, and showed German business leaders are less concerned about the crisis. It gave several reasons for the rise in confidence:
• Encouraging economic data from the US
• Hopes that 'the worst of the eurozone crisis might be over'
• The ECB recent actions (interest rate cuts and the offer of three-year cheap loans)
• GDP growth in Germany.
The news sent the euro rallying back over the €1.28 mark against the dollar.
Inflation in the eurozone dropped last month, according to data just released by Eurostat, but not as dramatically as in the UK.
The consumer prices index in the eurozone dropped to 2.7% on a year-on-year basis, from 2.8%3% in November.
Spain has a great result in the bond market this morning, selling almost €5bn of short-term debt at much lower interest rates than late last year.
The Spanish treasury sold €3bn of 12-month bills at an average yield (interest rate) of just 2.049%, down from 4.05% the last time it sold this type of debt.
It also shifted €1.87bn of 18-month bills, at a yield of 2.399%, down from 4.22%.
Both auctions attracted plenty of interest from investors, with bid-to-cover ratios of 3.5 and 3.2.
This is another sign that S&P's downgrades (it cut Spain by two notches from AA- to A) have not spooked investors.
Another immediate reaction is that the nearly €500bn of cheap loans handed out by the ECB last month is having an effect, with banks using the liquidity to buy peripheral debt as Mario Draghi hoped.
UK inflation fell sharply last month, with the consumer prices index (CPI) dropping to 4.2% on a year-on-year basis, from 4.8% in November.
That's the biggest drop in inflation since April 2009, and the lowest since June 2011, and is in line with economist forecasts.
Data released by the Office for National Statistics also showed that the retail prices index (used for wage negotiations and setting some state benefits) fell to 4.8% from 5.2% in November.
The ONS reported that clothing stores started offering discounts before Christmas (unlike the previous year, when prices started climbing ahead of the increase in VAT).
Relief for the Bank of England – which has long been promising that the rise in the cost of living could come back into line. It may also mean the Bank's Monetary Policy Committee votes for a third bout of quantitative easing soon (Carl-Ludwig Thiele would not approve!)
Next up, eurozone inflation at 10am...
In the comments below, peterbracken kindly flags up an interesting speech given by Carl-Ludwig Thiele, a Bundesbank board member.
Thiele signalled that the Bundesbank remains firmly opposed to the European Central Bank turning to quantitative easing, saying that:
One idea should be brushed aside once and for all – namely the idea of printing the required money. Because that would threaten the most important foundation for a stable currency: the independence of a price stability orientated central bank.
More controversially, Thiele also claimed that the ECB's current programme of buying up peripheral government debt breaks the rules.
These buys were a violation against the prohibition of monetary financing, that is the basic principle that a central bank should not give credit to a state.
Japan has offered Europe some support this morning.
Finance minister Jun Azumi said bonds issued by the European Financial Stability Facility (which funds the bailouts of Greece, Ireland and Portugal) remained "attractive" despite S&P's decision to slash its AAA rating last night.
Azumi told reporters in Toyko that:
Japan has bought them by certain amounts and our stance will not immediately change just because of the downgrade.
Encouraging, as the EFSF is reliant on the support of overseas investors to keep its progammes on track.
Klaus Regling, chief executive of the European Financial Stability Facility, has been quizzed about last night's S&P downgrade in the last few minutes.
Regling told reporters in Singapore that the downgrade would not have much impact "so long as Moody's and Fitch don't follow suit".
And possibly tempting fate further, Regling said that "no country would be forced out of the euro area" unless the situation went "terribly wrong", and that the EFSF has "never had problems" selling its bonds.
Regling's comments prompt the question - could another agency downgrade the EFSF too? I would suspect that Moody's is more likely than Fitch. Moody's said yesterday that it would make a decision on France's AAA by the end of March. Fitch, though, has said it is likely to leave France on AAA with negative outlook until next year.
Here's a quick run-down of today's agenda:
• UK inflation data 9.30am GMT
• Eurozone inflation data 10.00am GMT (11am CET)
• German ZEW survey of economic sentiment 10.00am GMT (11am CET)
• Spain auctions €4bn-€5bn of 12 and 18-month Treasury bills - 9.40am GMT
• Greek, Malta, Belgium debt auctions - morning
• EFSF auctions €1.5bn of 6-month debt for Portugal and Ireland - 11am GMT
• Mervyn King at the Treasury Select Committee - from 10am GMT
+ a general strike in Greece
Europe's banks stashed more than half a trillion euros with the European Central Bank last night – a record figure.
The ECB just announced that its overnight deposit facility took in €501.9bn last night, up from €493bn on Friday evening.
Regular readers will know that overnight deposits at the ECB have been hitting record levels in recent weeks, ever since the ECB pumped almost €500bn of cheap loans into the system in an effort to avoid a new credit crunch.
The ECB has denied that the banks who took these loans are now simply lending the money back to the central bank. However, the data is a sign of unease in the financial system. Banks are clearly happier to leave their excess capital in the ECB's vaults (where it will attract a very low interest rate) rather than either lending to each other or to the wider economy. That suggests a lack of trust in each other, concern that loans to other businesses could turn sour, or simply a fear that they face further writedowns on their own assets.
Shares are rallying across Europe in early trading. The FTSE 100 has jumped 50 points to 5707 (up 0.9%), while Germany's DAX opened 1.3% higher.
Traders are taking their cue from China's better-than-feared GDP data (see 7.55am). S&P's downgrade of the EFSF has also caused little alarm – like the French downgrade on Friday night, it was anticipated and 'priced in'.
Overnight, China has reported that its economic growth fell to its slowest rate in over two years.
Chinese GDP growth slowed to 8.9% in the fourth quarter of 2011 (on an annualised basis), dragging down growth for the full year to 9.2%, down from 10.3% in 2010.
China's National Bureau of Statistics, which released the data, also warned that 2012 will be challenging:
In terms of the domestic and international situation, 2012 will be a year of complexity and challenges so we should be fully prepared.
The Chinese economy appears to have felt the chill from the eurozone crisis in the last few months. Exports to Europe – a crucial market – grew by just 7% year-on-year last month, down from 22% in August.
But rather than causing any alarm, the GDP data sent shares surging on the Shanghai stock market. Two reasons – economists had expected a bigger drop in GDP growth, and there is speculation that the Chinese government might relax monetary policy to prevent a slowdown.
Good morning, and welcome to another day of rolling coverage of the European financial crisis.
Standard & Poor's decision to strip the European Financial Stability Facility of its AAA rating last night is still reverberating today. We'll soon know if the decision has alarmed investors – as the European bailout fund is auctioning €1.5bn of debt today.
Spain, Belgium, Malta, Greece and Hungary are also auctioning debt today.
In Greece, workers are expected to hold a general strike in protest at planned changes to working rights, including cuts to the minimum wage. The walkout comes ahead of the resumption of troubled talks between the Greek govenrment and its creditors.
We also have plenty of economic data today - including inflation data for both the UK and the eurozone, and economic confidence data for Germany. And Sir Mervyn King, governor of the Bank of England, is speaking in parliament about financial stability this morning.