Greek Prime Minister to Form New Government

Italy’s borrowing costs soared to their highest level in over a decade amid highly volatile trading as market contagion from Greece forced Silvio Berlusconi to appeal for national unity and “sacrifices” to cut the nation’s debt mountain.

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Financial market pressure on Italy intensified on Tuesday, sucking Europe's second biggest debtor nation deeper into the euro area danger zone and prompting emergency consultations in Rome and among European capitals.

Italian and Spanish bond yields hit their highest levels in 14 years, with five-year Italian yields reaching the same level as Spain's in a sign Rome is overtaking Madrid as a key focus of investors' concern about debt sustainability.

Italy's stock index fell 2.5 percent to its lowest in more than 27 months, dragged down by banks that have heavy exposure to Italian debt. European shares hit a 9-month low amid worries that slowing economic growth will make it even harder to overcome the euro zone's debt troubles.

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Lord Tammerlain said:

I cant see Greece being able to avoid default

The culture within Greece is too ingrained to allow for the various self interest groups to work together to see the required changes within the Greek economy, let alone within the government. It will require a default and the collapse of the economy to see the required changes being made. What will benifit Greece (or at least the mobile) is membership in the EU, which will allow many to move to other parts of the EU to seek work in the short term

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In one of the biggest banks in the centre of Athens a clerk is explaining how his savers have been thronging to pull out their cash.

Wary of giving his name, he glances around the marble-floored, wood-panelled foyer before pulling out a slim A4-sized folder. It is about the size of a small safety-deposit box – and those, ever since the financial crisis hit Greece 18 months ago, have become the most sought-after financial products in the country. Worried about whether the banks will stay in business, Greeks have been taking their life savings out of accounts and sticking them in metal slits in basement vaults.

The boxes are so popular that the bank has doubled the rent on them in the past year – and still every day between five and 10 customers request one. This bank ran out of spares months ago. The clerk leans over: "I've been working in a bank for 31 years, and I've never seen a panic like this."

Official figures back him up. In May alone, almost €5bn (£4.4bn) was pulled out of Greek deposits, as part of what analysts describe as a "silent bank run". This version is also disorderly and jittery, just not as obvious. Customers do not form long queues outside branches, they simply squirrel out as much as they can. Some of that money will have been used to pay debts or supplement incomes, of course, but bankers put the sheer volume of withdrawals down to a general fear about the outlook for Greece, one that runs all the way from the humble rainy-day saver to the really big money.

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Economic meltdown is forcing an exodus of creative Greeks, unprepared to trust their future to their crippled homeland. Sophia Ignatidou hears their tales

While Greeks protest their countries severe austerity measures in Syntagma Square, young creatives are being forced to abandon their native country

I left because they stole my dreams. I love you Greece, my home," photographer Manos Mak writes on his Facebook, as he unpacks his bags in his new apartment in London.

He is but one of many Greeks who – in the midst of an economic implosion – have seen life-long plans collapse, their ambitions scatter and all the constants in their lives give way to a nerve-racking arbitrariness.

Some will weather the storm but others are already leaving. The massive emigration wave of some of Greece's more talented citizens could leave it in a permanent state of creative limbo. Is running out of money really worse than running out of ideas?

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Once again seeking to calm market tension after efforts by euro zone governments failed, the European Central Bank on Thursday unexpectedly intervened in bond markets in an attempt to prevent the region’s sovereign debt crisis from engulfing Italy.

The show of force initially bolstered Italian and Spanish bonds. But the move appeared to backfire as stock markets in Europe and the United States fell sharply after Jean-Claude Trichet, the central bank’s president, warned of dangers ahead. The modest scale of the bank’s bond buying apparently fell short of what investors considered adequate.

The market downturn began in Europe but quickly spread to the United States as soon as trading opened Thursday morning on intensifying investor fears about a slowdown in global economic growth and worries about Europe’s debt crisis, which is centered now on Italy and Spain.

In another response to the escalating crisis, the E.C.B. moved to prop up weaker banks that may be having trouble raising funds, expanding its lending to euro zone institutions at the benchmark interest rate. The central bank left that rate unchanged at 1.5 percent, while the Bank of England left its benchmark rate at a record low of 0.5 percent.

Mr. Trichet declined to say what bonds the bank was buying or how much. He said the bank acted in response to “renewed tensions in some financial markets in the euro area.” It was the first such intervention since March.

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The French economy delivered no growth in the second quarter against expectations of a 0.2 per cent rise, intensifying pressure on the government to find significant new spending cuts to ensure France will meet its pledge to bring the public deficit to 3 per cent of GDP by 2013.

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