14.23 A banking union is achievable, says Mr Draghi. "I think some of the skepticism is unwarranted, I think a banking union can and will be achieved," he says.
14.16 While Mr Draghi continues to speak in parliament, a bit of news from the bond markets, where France has sold six month debt at a negative yield for the first time.
The country sold ?2bn of Treasury bills at an average yield of -0.006pc, compared with 0.096pc at an auction last week.
Demand was also strong, with 3.2 bidders for every bond on offer (vs 2.79).
14.05 Following a question that lasts at least three minutes from one MP, Mr Draghi responds:
When are we going to put action into words? This is key question. We have started. Many governments in EMU have started implementing reforms. Compare today with six months ago when we were near several major credit accidents, it's a different world. So why aren't we seeing the benefits of this?
These reforms have just started after many years of misguided policy making. The burst of action has been relatively recent.
Countries are sliding into recession because they have focused on raising taxes and not making cuts.
13.59 Mr Draghi praises the work of Portugal and Spain, and adds that the Irish authorities have maintained a strong track record for keeping momentum in their programmes. The euro is here to stay, he adds, but countries must move further towards fiscal union:
Why do we still have tensions in a number of market segments? Let me first stress that a lot has been done at country as well as euro area level in terms of economic reforms and governance. But we still need full implementation. We have to make clear that EMU is a union based on stability at national and aggregate levels.
The central message of that vision is this: the euro is here to stay and the euro area will take the necessary steps to ensure that.
13.53 Mr Draghi repeats much of what he said at last week's press conference when the ECB cut interest rates.
He says that indicators for the second quarter point to weakened growth and heightened uncertainty. Effective crisis resolution means bold action by central banks, but also by governments, he adds.
13.42 Mario Draghi, the head of the ECB, is addressing the European Parliament. You can watch it live here:
13.21 More on the rumours that Spain's deficit targets could be relaxed (see 10.43). Reuters is reporting that the European Commission will set the country a new target of 6.3pc this year if EU finance ministers including George Osborne agree on Tuesday (compared with the "unconditional" target of 5.3pc it agreed in March).
12.25 And another one bites the dust. Two weeks after Greece's finance minister resigned due to ill health, Nikos Nikolopoulos, the deputy labour minister, has also quit over the government's weak stance on renegotiating its bail-out. Greek channel NET TV quoted him as saying:
The sole reason of my resignation is my personal conviction that the issue of renegotiating with the troika, as well as the correction of significant distortions in labour, pension, social security and welfare issues, should have been emphatically put on the table from the start.
11.38 The amount Portuguese banks borrowed from the European Central Bank (ECB) rose to a record in June. Financing hit ?60.5bn last month, compared with ?58.7bn in May, according to the Bank of Portugal.
11.23 Germany is still the eurozone's safest haven. In fact, the country is perceived to be so safe that for the second time this year, investors have been willing to pay for the privilege of lending to it.
Germany paid an average yield of -0.0344pc to get an auction of six-month debt away this morning. This compares with a yield of 0.007pc at a similar auction in June.
In January, it sold six month debt at an average yield of -0.00122pc.
11.00 Cutting France's debt ?is not a choice of austerity but of sovereignity,? Francois Hollande has declared.
At a conference in Paris, the French president described returning to growth as an "obligation," but added that debt and deficit cutting measures also needed to be met, and that the country must correct its rigid spending habits in order to get public spending down.
Francois Hollande (centre), speaks at a social conference with unions and employers on Monday in Paris (Photo: AFP).
10.43 Spain will be given an extra year to meet the EU's new 3pc deficit target, according to reports.
EU diplomats told Reuters that Spain will be given until 2014 to meet the target. One said:
Spain's budget consolidation targets will be adjusted to give it an extra year [...] This is not a unilateral move. Spain needs to make the necessary cuts to reach that goal and this will be discussed on Tuesday at the Ecofin [meeting of EU finance ministers]. I expect the extra year to be granted.
25 EU leaders signed the fiskalpakt in March (Britain and the Czech Republic didn't), enshrining tough budget rules into national law.
In the same month, Spanish PM Mariano Rajoy succeeded in getting the country's 2012 target relaxed from 4.4pc of GDP to 5.3pc.
Back then, Mr Rajoy described the 2012 target as "unconditional".
10.17 But I thought France was binning austerity and getting ready for a spending splurge? After all, Mr Hollande has already lowered the retirement age for some workers and raised the minimum wage.
More from Mr Weisenthal:
...the reality is, when it comes to these countries, is that fiscal soundness is much more about perception than reality. After all, Spain has put forth a decent effort on reforms so far. And Italy's deficit isn't that huge (though it's debt is). Nothing that either country is doing is saving them from the sovereign debt collapse vortex.
At this point, the market is rendering a judgment on the Eurozone itself, and it's figuring out who's really in the club of those who are too big to fail and who isn't. For now the market believes that France is in the club with Germany, of countries who absolutely are too big to fail, and would be saved to the penny come hell or high water. The market is not convinced of that with respect to Spain or Italy, and that's why you have the divergence.
10.10 So, investors are pulling money out of Spain. But where are they putting it? As Joe Weisenthal at Business Insider highlights, money is being piled into France at such a rate that short term borrowing costs could soon turn negative.
Two-year borrowing costs have dropped from 0.52pc less than two weeks ago to 0.1409pc today.
French borrowing costs on two year debt have plunged in recent weeks (Source: Bloomberg)
09.57 Italian and Spanish borrowing costs are now higher than Ireland's, which is funding itself via an ?85bn bail-out agreed in 2010.
Irish benchmark 10-year yields are currently at 5.95pc, compared with 7.019pc in Spain, and 6.128pc in Italy. The country dipped its toe back into the debt market last week, selling ?500m of three-month debt at average rates of 1.8pc. Two weeks ago, Spain was forced to pay 2.362pc to sell three-month debt.
09.30 Commenting on the rise in Spanish borrowing costs, one trader told Reuters:
In the absence of new news or further details on the agreed measures from today's meeting, the path of least resistance is for higher peripheral yields and Spain is back at fairly crucial levels [...] The periphery will give us the lead today but it looks like the market is just going to keep going after Spain until it cracks.
09.13 Spanish bond yields have climbed above 7pc, the highest level since last month's EU summit. This is the "unsustainable" level at which Greece, Ireland and Portugal asked for international bail-outs.
Spain will receive up to a ?100bn bail-out to recapitalise its battered banks.
09.01 German exports jumped more than expected in May, reversing April's 1.7pc decline, official data showed.
However, a rise in imports saw Germany's trade surplus narrow by ?1.2bn to ?15bn.
Stefan Schilbe at HSBC Trinkhaus, said:
The drop (in trade data) in the previous month was significant, so now we are seeing a considerable rebound. The rise in imports shows that the domestic economy is performing better. We expect that imports to Germany will remain strong. There are factors weighing on the export side - the euro debt crisis and the economic weakness in other regions of the world such as the United States.
08.44 Alexis Tsipras, leader of the SYRIZA party, was his usual vociferous self, and accused the government over the weekend of selling off state entities "like an estate agent".
But conservative PM Mr Samaras retorted:
You are trying to intimidate us into doing nothing...you play the same game as those who want to push Greece out of the euro. You are a stalking horse for the drachma lobby [...]Look, Mr. Tsipras. You better drop your threats.
Radical left SYRIZA party leader Alexis Tsipras addresses MPs during a session at the parliament in Athens on Sunday (Photo: Reuters).
08.36 Those late nights in Greece continue. The new coalition government passed a confidence vote yesterday, following a three-day debate in which politicians pledged to push through long-planned structural reforms and privatisation measures.
All 179 ruling coalition MPs in the 300-seat parliament backed the motion.
Greek Prime Minister Antonis Samaras is congratulated by his MPs after a vote of confidence in the Greek Parliament in Athens on Sunday evening (Photo: EPA)
08.26 It looks like German Chancellor Angela Merkel has already forgotten about former French president Nicolas Sarkozy, as she celebrated 50 years of French and German reconciliation yesterday with her new political husband, Francois Hollande:
Out with the old, in with the new...Europe's new power couple, Angela Merkel and Francois Hollande, embrace in Reims, France, on Sunday (Photo: Reuters)
08.21 European markets have opened flat this morning. The FTSE 100 in London is trading at 5,661.85, while the CAC 40 in Paris is down 0.1pc at 3,164.12 and Frankfurt's DAX 30 is flat at 6,409.41.
08.15 Commenting on the data, Klaus Baader at Societe Generale said:
Overall, the decline in inflation is clearly beneficial for consumption in the near term and was undoubtedly a key ingredient in motivating the PBoC to cut interest rates for the second time in one month last Thursday. With such moderate rates of inflation, further easing is likely, although the next step is in our view more likely to be a reduction in the Required Reserve Ratio rather than in lending and deposit rates.
08.13 In Asia, Chinese inflation slowed to its lowest rate in more than two years in June. Consumer prices rose by 2.2pc on an annual basis, according to the National Bureau of Statistics, from 3pc in May. This was mainly driven by food prices, which slowed to a 3.8pc rise, from 6.4pc.
07.59 France's economy is expected to have contracted in the second quarter, according to the country's central bank.
The Bank of France predicts the economy contracted by 0.1pc between April and June, confirming inital forecasts. The mild contraction would be the first since early 2009.
Preliminary GDP figures are out next month.
07.55 So how long this time? Economist Wolfgang M?nchau argues in today's FT that it could be 20 years before we solve the eurozone crisis:
The consensus among observers had been that the EU had taken an important step in the right direction by agreeing a pathway towards a banking union, but that they did not do enough on crisis resolution. I disagree with that statement. I think it was a very large step ? in the wrong direction. The summit made a concrete crisis resolution decision contingent on a future decision, which will be even harder to reach, and thus even more likely to fail.
They agreed that there shall be no common bank recapitalisation until a full banking union is established. And the Bundesbank has reminded us that the latter is not possible without a political union. The logical implication is that we won?t solve the crisis for the next 20 years.
What we know now is that Germany will not agree to mutualised deposit insurance. It cannot even agree to give the European Stability Mechanism a banking licence so that it can leverage itself. If Germany cannot do the minimum necessary now, why should anybody think it can agree a political union? This is less credible than the promise by an alcoholic to give up drinking in five years.
07.48 Eurozone finance ministers will meet this afternoon to flesh out details from last month's summit in Brussels. But there could be little to finalise. Decisions on Cyprus and Spain's bail-outs, and whether to grant Greece latitude on its rescue terms will take months to complete.
Meanwhile, Spanish and Italian borrowing costs have continued to rise. Italian borrowing costs have climbed back above 6pc this morning, while Spanish benchmark 10-year yields are close to hitting 7pc again.
07.45 Good morning and welcome back to our live coverage of the European debt crisis.
Debt crisis live: archive
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