Debt crisis: live

_{Not happy: Jyrki Katainen told Bloomberg that negative bond yields were not a substitute for a decline in demand.}

12.08 Finland has denied suggestions that it is mulling a euro exit. Jyrki Katainen told Bloomberg:

We will not and do not consider exiting the euro [...] We want to be at the heart of European development. A stronger euro, a better euro is the only, and reasonable, thing for Finland.

Economists including Telegraph columnist and Wolfson Prize winner Roger Bootle and Nouriel Roubini have suggested that Finland could be better off outside the euro-area.

11.43 The pain in Spain means our holidays there could become a lot more expensive. Ryanair has cancelled 11 routes out of Madrid and four out of Barcelona because of the government's decision to double taxes at these airports. Several routes will also be reduced, the low cost airline said in a statement.

Ryanair boss Michael O’Leary said:

Ryanair objects to the Spanish government’s decision to double airport taxes at both Madrid and Barcelona airports. Sadly, this will lead to severe traffic, tourism and job cuts at both airports this winter. Ryanair’s cuts alone will cause a combined loss of 2.3m passengers and over 2,000 jobs at Madrid and Barcelona El Prat airports to other lower cost airports elsewhere in Europe, where Ryanair continues to grow.

The announcement confirms reports in Spanish business daily Expansion of the cuts.

11.24 One record that has already been broken today is the difference between Spain and Germany's borrowing costs.

The "spread" between Spanish and German 10-year yields widened to 590 basis points - a euro-era high.

11.09 This is below the intra-day high of 7.28pc hit on June 18. However, if the yield (which has just hit 7.11pc), stays at this level - it will surpass the current closing euro-era high of 7.07pc.

11.02 Spanish bond yields have crept back above 7pc. The yield on 10-year government bonds is currently at 7.09pc.

10.38 France's lower house of parliament has passed a new budget that will raise about €7bn (£5.5bn) in new revenue by targeting the big corporations and the wealthy. The measures reverse measures passed under former French president, Nicolas Sarkozy.

The vote goes to the Senate on Tuesday.

09.54 Howard Archer, an economist at IHS Global Insight, said:

Another month, another set of bleak public finance data that make very worrying reading for the Chancellor. Three months into the fiscal year, and Mr. Osborne is already facing an almighty struggle to meet his fiscal targets for 2012/13 and looks ever more likely to miss them.

[...]The Chancellor desperately needs the economy to quickly return to growth and then sustain that, or else he faces suffering a significant shortfall on his public finance targets. Furthermore, the longer the economy continues to flounder, the more pressure the government will come under to ease back on the fiscal austerity in the near term at least. This was highlighted by the IMF’s comments this week.

Meanwhile, extended weakened economic activity and poor public finances is posing an ever growing threat to the UK’s AAA credit rating which is so prized by the government.

_{Reasons to be gloomy: economists warned that poor public finances posed an increasing threat to the UK's AAA credit rating (Photo: Reuters).}

09.50 Commenting on the UK borrowing figures, a Treasury spokesman told Reuters:

It is too early in the financial year to draw conclusions about the year as a whole. This is volatile data and is prone to revision: borrowing for last year has been revised again and is now estimated to be below the OBR's forecast.

09.43 The UK government borrowed more than expected last month, as official figures showed Britain's recession-hit economy is now on course to miss full-year targets.

Public sector net borrowing (excluding financial interventions such as bank bail-outs) climbed to £14.4bn in June, according to the Office for National Statistics.

This was higher than the £13.4bn expected by economists surveyed by Bloomberg, and the £13.9bn borrowed by the government in June 2011.

The government has been set a borrowing target of £120bn by the Office for Budget Responsibility (OBR) this financial year. If June's trend continues, borrowing will come in at around £140bn.

09.32 However, unlike the IMF, which urged the ECB this week to consider "sizeable" QE, Goldman is sceptical of the benefits of mass money printing by the ECB. More from Mr Schumacher:

The ECB could in principle also buy a weighted basket of Euro area sovereign debt. However, such a Euro area wide Quantitative Easing approach would have few additional benefits, in our view. It is not clear why reducing long-term yields in the core countries would be needed at this point. Moreover, purchases of government debt would add liquidity to the banking system if the ECB did not sterilise its purchases. But the ECB’s LTROs and changes to the collateral framework seem to be by far the more effective way to increase liquidity

09.29 The ECB has a number of orthodox tools it can use, including cutting benchmark and deposit rates, the latter of which has seen the difference between German and French borrowing costs narrow (see chart below), as investors seek higher returns thnt the zero rate now offered by the ECB.

It also has a few unorthodox, or, as the ECB likes to call it "non-standard measures" it can use. These include more longer term refinancing operations (LTROs), changes to collateral requirements, and even quantitative easing.

09.21 What can the European Central Bank do to ease the crisis? Quite a lot, according to economists at Goldman Sachs.

Mario Draghi, the ECB's president, has reminded us on several occassions that the direct funding of governments by the ECB is forbidden. However, Dirk Schumacher at Goldman highlights that the central bank has enough monetary gadgets in its toolbox to deal with the crisis effectively.

Mr Schumacher highlights two reasons why the ECB has decided not to spring into action thus far:

For one, the ECB is worried about the potential negative side effects of further measures on its credibility, as well as how these are viewed by the general public. Moreover, the ECB sees itself as being engaged in a strategic game with governments. A proactive stance risks governments reducing their efforts to stabilise the system. Thus, a deterioration in the situation is, to some extent at least, a necessary condition for further ECB action.

08.46 Finland has approved Spain's bank bail-out this morning. Parliament voted 109 to 73 in favour of the deal.

Finland struck a deal with Spain this week to receive collateral worth up to €770m (£601m) in exchange for the aid.

The country struck a similar deal with Greece last year.

08.42 Germany expects economic growth to be "somewhat lower" in the second quarter of the year, according to the country's finance ministry.

In its monthly report, the finance ministry added that growth for the rest of 2012 was likely to be "moderate".

08.37 European stock markets have opened flat this morning. The FTSE 100 in London is down 0.2pc at 5,701.01, while the CAC 40 in Paris is down 0.2pc at 3,257.26 and Spain's IBEX 35 index is down 0.15pc at 6,642.70.

Spanish borrowing costs have also ticked up this morning. The yield on benchmark 10-year debt is up by 2 basis points this morning to 6.946pc, while in Italy, yields are close to hitting 6pc once again.

08.30 On the domestic front, the International Monetary Fund (IMF) warned yesterday that Britain should rein in its austerity programme and cut taxes or increase infrastructure spending. It also said British homeowners faced an “extended housing market slump”. Prices are still too high, it said, and could drop by a further 10-15pc relative to Britons’ salaries.

08.28 Eurozone finance ministers will hold a conference call at 11am today where they are expected to approve a bail-out of up to €100bn to shore-up the country's ailing financial sector.

We're still uncertain of how much of the €100bn Spain's banks will need. The amount is not expected to be finanlised until September, when a round of in-depth audits are completed.

08.15 The protests continued into the night, as Spain ratified €65bn in budget cuts announced by prime minister Mariano Rajoy before the weekend. Earlier this week he said:

This government cannot choose between good and bad options, but between bad and worse, which is what we are doing. If we maintain this common-sense policy, Spain will emerge from the crisis.

_{A girl holds a poster depicting German Chancellor Angela Merkel as the mother of Spanish PM Mariano Rajoy during a protest against government austerity measures on Thursday. The poster reads: "Mom Merkel feeding: Either you eat up the bail-out or there are no sweets for you (Photo: Reuters).}

08.08 Spain's borrowing costs surged to euro-era highs yesterday despite draconian fiscal cuts and backing from the German parliament for the country’s €100bn bank rescue package. A raft of new austerity measures sparked protests in cities all over the country, including Barcelona, below.

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

Debt crisis live: archive