Greece's financial crisis - LIVE

• S&P hits Spain with a credit rating downgrade
• Rumours of a €120bn bailout plan calm the City
• Letting Greece join the eurozone may have been a mistake, admits Angela Merkel after talks with the IMF
• Bond yields hit record highs today as markets shun Greek government debt
• OECD secretary general compares crisis to the Ebola virus

Greece desperately needs a bailout, but negotiations over the plan are continuing in Berlin today. Photograph: ARIS MESSINIS/AFP/Getty Images

5.03pm: We're also hearing from America that Barack Obama is concerned about the Euro debt crisis - and this was before Spain's credit rating was cut by S&P.

According to Reuters,White House spokesman Bill Burton told reporters on Air Force One today that the US president is watching affairs closely:

This is something that is of great concern to the president and we're monitoring it very closely...[The US Treasury is] in close contact with folks in Europe about the issue.

4.54pm: The Spanish downgrade really does ratchet up the pressure on the European Union. Spain's stock market has just closed 3% lower, and financial companies across Europe were hit by a late wave of selling.

This is certainly bad news for Britain's banks. According to research from Credit Suisse, the UK banking sector has around £75bn of exposure to Spanish debt. Most of it is held by Barclays and Royal Bank of Scotland, while Lloyds is said to have 'negligible' exposure.

David Buik of BGC Partners was the first City figure to comment:

The longer the EU and the IMF vacillate and remain indecisive, the greater chance of some implosion! GCSE economics! Wake up guys and smell the coffee!

The pound has also hit a new low for the day, touching $1.5146. It's lost nearly a cent and a half since dawn.....

4.30pm: Standard & Poor's strikes again! This time Spain is its target. S&P has just downgraded Spain's credit rating from AA+ to AA (two rungs away from the AAA top rating), with a Negative outlook.

This blow came just moments before the end of trading in London. Some traders managed to fire sell orders through, so the FTSE100 is now down by 16.91 points at 5586.

The euro is really feeling the pain, though, hitting a new one-year low of $1.313 against the dollar.

S&P said it had decided to downgrade Spain's credit rating by one notch because it believes its economy will suffer "a more protracted period of sluggish growth than previously expected."

In another signal that it is the ratings agency and the bond markets who are calling the shots, S&P said it might revise Spain's outlook to Stable if its government "meets or exceeds fiscal objectives in 2010 and 2011".

Don't forget we have a full list of world credit ratings here (which we will be updating sharpish!)

4.14pm: Here we go... Angela Merkel's press conference has begun in Berlin. The German chancellor is appearing with Dominic Strauss-Kahn - in a show of unity at this time of turbulence?

The top line is that we don't have a deal yet. But like Strauss-Kahn and Trichet earlier, Merkel is talking tough about the need to act quickly.

Negotiations with Greece must be accelerated. I hope they can be concluded in the coming days.

Merkel also suggests that a lot of the blame for the current crisis can be laid at the door of previous European politicians for allowing Greece into the eurozone in the first place:

In 2000 we had a situation when we were confronted with the question of whether Greece should be able to join the eurozone. It turned [out] that the decision may not have been scrutinised closely enough.

And that appears to be the sum of her views. No mention of quite how much might be pumped into Greece - Germany, of course, will have to pay a significant slice of any EU package. Also no hint about whether Greece will have to restructure its existing loans. Analysts believe that Greek bondholders face a severe 'haircut' of perhaps 40%.

3.29pm: We seem to have reached a bit of a pause, ahead of Angela Merkel's press conference (which was scheduled for 14:45 GMT, so in about 15 minutes time). Hopefully she isn't being distracted by live coverage of a closed door in Rochdale.

So let's look at the markets, which are also waiting for events. FTSE 100 is up 9 points at 5612, the Dow Jones is up 23 points at 11015, but the German DAX and French CAC markets are both down around 1% - reflecting the uncertainty over how Greece will impact on the eurozone.

The markets are also showing a little bit more confidence in Greece's ability to repay its debts, with the credit default swap on the five-year Greek bond now down at 700-710 basis points. And the yield on the two-year Greek bond is back around 16% - still absurdly high, but better than the 38% briefly recorded this morning.

2.42pm: The press conference with Trichet and Strauss-Kahn is now well underway in Berlin. The key news seems to be that we don't have an agreement yet, but htat we might get one soon:

Strauss-Kahn also declined to comment on the speculation that the Greek rescue package is being increased to €120bn.

Here are some of the key points via Reuters:

Trichet first:

I am making a working assumption that we'll have a very good end of this negotiation. It depends on us and it depends on the government of Greece.

I make the working assumption that when this green light is given, depending on the programme itself, then we have an absolute necessity to decide very rapidly. It depends on the decision making process in the IMF and in Europe. That is why the fast decision of the German parliament is so important.

And some words from Strauss-Kahn:

It was a useful meeting. As you know the IMF has been discussing with the EU Commission for a week. Of course it's difficult because what is being done by the Greek government and the Greek people is very difficult. The international community is here to help them so that they can return to normalcy.

What is at stake today is the economic situation of Greece. but it's more than that. it's the
confidence that's at stake. That's why we need to act swiftly and strongly. It is a loan and will be repaid in time. It's not grants. It's loans.

If all this goes together rapidly, I'm very confident that the problem will be fixed. But if we don't fix it in Greece it may have a lot of consequences on the EU.

2.34pm: Deep breaths, one and all. Jean-Claude Trichet, head of the ECB, has just poured cold water on those rumours that a €120bn rescue plan for Greece has been agreed.

He's saying that it's "Important that we have talks going on......I am confident that we will see a good conclusion." (emphasis mine). In other words, negotiations continue.....

German finance minister Wolfgang Schaeuble also told a press conference that the German government wants to reach an agreement "quickly". This could mean reaching an agreement with groups in the German parliament by Friday, and a new law passed next Monday.

The FTSE 100 (our local barometer of investor sentiment) has slipped back to 5614, a 10 point rise on the day.

Over on Wall Street the trading bell has just been rung, and the Dow Jones index is up 27 points in early trading at 11019 (it takes the Dow around 15 minutes to get properly up to speed).....

2.05pm: We're keeping a firm eye on Berlin (the other one is being distracted by Gordon Brown's little local difficulty in Rochdale) for any signs of progress in the bailout talks. There's no sign of the Trichet/Strauss-Kahn press conference we were expecting, but it appears that the package will - as the City was starting to suspect - be increased.

Reuters is flashing that German MP Juergen Trittin, head of the Greens, is briefing journalists that the total package could be as big as €100bn-€120bn. The French PM has also come out and said that the existing €30bn package on offer from the EU should be implemented immediately.

This is exciting the financial markets, sending the euro rallying against the dollar, and up above 87p against the pound. Greek bonds have also benefitted - the spread between Greek and German 10 year government bonds is back around 830 basis points. That's unacceptably high, but better than the 1,000bps spread we saw earlier today.

The FTSE 100 is also gaining, now up 32 points at 5632.

More details when we get 'em....

1.47pm: Interesting news from Lisbon, where leaders across the political spectrum have joined forces in an attempt to reassure the financial markets, after its rating was downgraded by S&P yesterday.

Prime minister Jose Socrates met with Pedro Passos Coelho, the head of the main opposition earlier today. The pair just announced that they've agreed to bring forward some austerity measures that had been scheduled for 2011.

Socrates, who runs the Socialist party, said they were responding to "a speculative attack on the euro and Portugese debt."

Passos Coelho, who heads the centre-right Social Democrats, said he was pleased that Socrates had indicated a willingness to consider "additional austerity measures"

1.06pm: Several hours ago, YeeofLittleFaith posted in the comments below that Greece should "tell S&P to bugger off". 233 fellow readers (and counting) agree. But do you think Germany should yield and support the bailout? We've set up a poll where you can have your say - here.

12.42pm: As this latest panic was caused by Standard & Poor's decision to downgrade Greece to junk bond status, we thought it would be useful to show a full list of S&P's credit ratings.

S&P's ratings cover 123 nations. Having been cut to BB+, the highest of the non-investment grades, the Hellenic Republic is in the same group as the Panama, Egypt and Colombia.

Of course, there are various degrees of junk. Right at the bottom of the pile is Equador with a CCC+ rating.

Eighteen countries have the honour of a triple-A credit rating. Of these just one, the UK, is on negative credit watch. The others are all seen as stable.

But according to Simon Hayes of Barclays Capital, there's little risk of Britain being downgraded:

Although there remains a question mark over the UK's sovereign rating we do not expect a downgrade. S&P and Fitch have expressed some concern about the current government plans for fiscal consolidation, but we expect the next government to tighten policy by a little more than is currently projected. Given the broad consensus across the political parties about the need to reduce the public deficit, and the closeness of the main parties' stated consolidation plans, we do not believe that the election outcome will materially change the broad outlook for public borrowing and debt.

12.31pm: With the FTSE 100 now breaking into positive territory (must be that rumour of the €90bn package being readied), it's time for a quick recap of events so far and the schedule for the rest of the day.

• After falling early, world stock markets have erased most of their losses
• But the yield on Greek bonds has soared, and it is now more expensive to insure Greek government debt than any other country's (10.47am)
• German politicians are meeting with the heads of the IMF and the ECB shortly (10.25am)
• The OECD's director general has said the crisis needs to be dealt with like the Ebola virus (11.51am)
• Alistair Darling has urged his fellow European finance ministers to hurry up (10.05am)
• City insiders are speculating that a €90bn rescue package for Greece might be announced today (11.51am)

Looking ahead....

Jean-Claude Trichet of the EBC and Dominic Strauss-Kahn of the IMF should give an update at 12.30pm GMT (so just under an hour's time), although timing may be flexible

Angela Merkel is scheduled to hold her own press conference at 14.45 GMT.

Wall Street trading begins at 9.30am EST / 2.30 PM BST. The futures market is indicating that shares will rally somewhat following yesterday's heavy losses, with a 36-point rally being predicted on the Dow Jones index.

11.51am: We've got the full details of the "Ebola" quote I mentioned earlier. One correction, we do have the identity of the speaker, and it's a big hitter - OECD director general Angel Gurria. Over to Bloomberg:

"It's not a question of the danger of contagion; contagion has already happened," Gurria said in an interview with Bloomberg television in Berlin today. "This is like Ebola. When you realize you have it you have to cut your leg off in order to survive."

You can watch David Tweed's full interview with Gurria here.

This is just the kind of talk that gets FT Alphaville reaching for their tin hats. Alphaville has also flagged up a rumour going round the City that a €90bn rescue package might be announced in Berlin this afternoon. This has helped to pull shares back from those early lows (FTSE 100 now down just 20 points at 5583).

In other news, Ladbrokes has cut the odds on Greece being booted out of the eurozone before the end of 2010 to 13/8. To be honest, that's only a small change from yesterday's odds of 7/4 on the "sick man of Europe" quitting the single currency.

But perhaps more surprisingly, Ladbrokes is only prepared to give 3/1 odds on Portugal quitting the euro before the start of 2011.....

11.28am: The Greece crisis continues to feature on today's campaigning circuit. This is from our election live blog:

David Cameron is in Ed Balls' consituency (Morley and Outwood), doing a Q&A with workers at the Wakefield Coca-Cola plant. He has just made his own assessment of the Greek debt crisis. He said that if he had not been for the Tories opposing entry into the euro, British taxpayers would now be spending money bailing out Greece.

And I'm seeing on my Reuters terminal that Alistair Darling is repeating his warning that there is "no time to lose" for the IMF and ECB to solve the problems.

11.21am: You may remember that a few months ago we reported that two rightwing German politicians had insisted that Greece sells its precious art works and historic buildings as the price for a rescue.

German politicians suggested Greece could sell off its islands. Photograph: Corbis

Josef Schlarmann and Frank Schaeffler even suggested that Athens could throw a couple of Aegean islands into the pot too.

Well, thanks to the magic of Twitter, they now have an offer:

@chriskoski Dear Greece, I am willing to pay up to twenty American dollars, in hard cash, for one or more of your islands. (No minotaurs, please.)

Do I hear $30?

11.13am: Our banking expert, Jill Treanor, has been crunching the latest data from the Bank for International Settlements to try and work out how much the Greeks owe to overseas lenders:

The data runs to the end of 2009 and shows that about $240bn (£158bn) is owed overseas. France and Germany have the biggest exposures of $75bn and $45bn respectively. The UK is owed $15bn and the US $17bn.

You can see the data yourself on the BIS website.

11.00am: More news from Berlin - Trichet and Strauss-Kahn will give a press conference at 12.30 GMT to update the world on their talks with the German government.

This seems to have brought some calm to the markets, with the FTSE 100 now down 30 points at 5573. Traders may be calculating that these big cheeses must have something positive to tell us.

The pound keeps falling, though, to around $1.5173.

I've been speaking to Richard Turner, currency dealer at UK Forex. He explained that people are taking all their risky trades off the table before the crisis blows up.

Turner speaks to corporate customers every day, and reports that many are trying to "lock" themselves into the prevailing currency rates today. With the general election looming, there is a lot of fear out there.

10.47am: Another statistic to underline the scale of the problems facing Greece - the credit default swap on its five-year government bonds has now reached 911.6 basis points. That means it costs more to insure Greek debt today than that of any other country (Venezuela, at 836 basis points, has just been shunted aside).

Bloomberg's David Tweed gets a virtual round of applause for this gem of a quote from a (sadly) unnamed official, who compared Greece's woes to "the Ebola virus", saying they need to be rapidly eradicated. SEE UPDATE 11.51am update

Sky's Tim Marshall has also predicted that the PIIGS* (his words, not mine!) are off to get slaughtered, with Britain possibly following.

Instability in Europe is hardly conducive to the recovery of the British economy which has its own massive budget deficit.

So these PIIGS may go to market, and this British non piggy may go 'We we we are part of this!' all the way home.

* - Portugal, Italy, Ireland, Greece, and Spain

10.25am: More details are emerging about the meetings between the heads of the European Central Bank and the IMF, and Angela Merkel's government in Berlin today.

Kate Connolly, our correspondent in Germany, says that Jean-Claude Trichet and Dominque Strauss-Kahn will put German politicians under pressure to agree the bailout by insisting that the rescue package is "a necessity" rather than just a friendly act.

Merkel is due to give a statement at 14.45pm GMT after the talks finish, so we should know by then how this pitch went down.

But as I mentioned before, the German public will need some convincing. Banner headlines in today's newspapers include "You Greeks are getting nothing from us!", and "We Fear for our money".

Senior members of the ECB appear to be conducting a rapid-fire exercise to get Germany onside. Executive board member Juergen Stark told an audience in Berlin that action is needed now. Stark also claimed that Greece is an isolated case, and that it would be wrong to think that Portugal is in the same mess.

And Axel Weber, one of the ECB's senior policymakers, has insisted that the bailout is meant to ensure financial stability across the Eurozone rather than just patch up Greece's self-inflicted wounds. Weber also piled on the pressure, saying that while a widespread credit crunch in Germany is unlikely it "cannot be ruled out."

10.05am: Chancellor Alistair Darling has now spoken out, calling on the Eurozone to 'urgently' sort out the Greek bailout before the situation spirals out of control.

Darling told LBC Radio this morning he spoke to his European counterparts last night to express his views:

They know that they have got to sort it out. They have promised money, and what I would say is they need to make that money available as soon as possible. If we can sort out the problems in Greece quickly, then that will make people more confident.

Darling, of course, knows all about the need to maintain public confidence during a crisis, having helped steer the UK through the near-collapse of the entire banking sector in the autumn of 2008 when the cash machines came close to running dry.

9.45am: We're now getting prices from the bond markets, and it's looking like blood on the floor for Greece.

The yield on Greek two-year bonds has just blown apart to a scarcely believable 38%. It's inconcevable that a country could refinance itself at that level of interest rate, so it indicates that only the gutsiest speculators feel that medium-term Greek debt is worth holding onto.

As a comparison, the yield on this debt was just 1.3% last November, and still available at just over 5% at the start of this month.

Greek credit default swaps have just hit a new all-time high as well, with the insurance on five-year government bonds hitting 883.8 basis points. That's an alltime high.

There's another key measure that everyone in power, and across the City, will be watching and that is the gap between the yield on ten-year Greek government bonds and the German equivalent. That spread just hit its highest level since January 1995, at 995 basis points. Three weeks ago, investors were rushing to sell Greek debt when that spread hit 440 basis points.

9.33am: But every crisis is also an opportunity...to crack a few gags. Harry Wallop of the Daily Telegraph is retweeting the best jokes on Twitter (no squinting at a Reuters terminal for @hwallop). Here's a few:

@callummay: I'd like to remind journos of opportunity to use the old "making a Drachma out of a crisis" + "come Acropolis" headlines

@adamblenford: @callummay Surely there's mileage in 'Losing their marbles' as well?

@nicstevenson beware of Greeks bearing gilts?

The Liberal Democrat press office also enjoy a good chortle:

@LibDemPress: @hwallop The four horsemen of the Acropolis?

Vince Cable is taking a more serious line, though. The Lib Deb Treasury spokesman is quoted as warning that Britain will face the same problems as Greece unless the UK deficit is tackled by the next government.

9.15am: Scratch what we said at 8.12am about the City taking the Greek crisis in its stride. In the last few minutes shares have fallen sharply in London, where the FTSE 100 is now down by 66 points at 5536.

That's a 216 point fall since S&P downgraded Greece's credit rating yesterday afternoon.

As my colleague Nick Fletcher reports here, the banks are the biggest fallers, with RBS tumbling up to 7%, Lloyds down by 6.5% and Barclays off 4%.

Across Europe share prices are in retreat, with Germany's DAX index down 1% and the French CAC losing 1.2%. It's also turning into a very bad day for Portugal, where the leading index is down almost 6%. And the pound is wobbling, down below $1.52 against the dollar as I type.

This just piles more pressure on Europe's politicians, ahead of the showdown talks in Berlin. Traders are looking for the IMF and the European Central Bank to make progress on the details of a bailout for Greece, and reassurance that more countries won't be dragged into the mess.

Koen De Leus, economist at KBC Securities, told Reuters that the escalating Greek crisis is the key issue on the financial markets today.

The chances of a default by the Greek government are increasing not by the day but by the hour. If the IMF and European governments don't come up with something quickly, then I see the market going down further quite rapidly.

Investors are starting to react emotionally. In the current environment, it's very difficult to impress with better-than-expected earnings.

9.02am: The crisis is also becoming a theme in the UK election campaign. Peter Mandelson just told this morning's Labour press conference that the Greek situation "highlights the fragility of the European, and the global, economic climate." He also insisted that the UK economy was much stronger than Greece's.

David Miliband has also taken a pop at Conservative leader David Cameron over the issue. The foreign secretary accused Cameron of 'economic illiteracy' after pointing out that both country's face rocketing borrowing requirements:

I think the way David Cameron is talking about Greece and Britain in the same breath is economic illiteracy.

We have a deficit reduction plan to halve the deficit in four years. That's absolutely on the table and it's clear for markets and for voters to see. The credibility we have is based on the published plans we have.

Britain ran up a debt of £163bn in the last year, which is around 11% of GDP. Greece's national debt was more than 13% of its GDP, although there is concern that its data may not be reliable.

8.58am: The most important action today is going to take place in Germany today. Dominique Strauss-Kahn, the head of the IMF, is in Berlin today to try to persuade parliamentarians to support the bailout. We're expecting high-level talks, including a meeting with Germany's finance minister, Wolfgang Schaeuble.

Schaeuble has said previously that Germany will not let Greece fail, although the German government is demanding tough conditions.

There's also a rumour that German leader Angela Merkel will meet with Strauss-Kahn and the president of the ECB today. This is helping to maintain optimism in the markets, although the FTSE 100 is now down 21 points at 5581.

The German public, though, remain wary of rescuing the Greeks. One headline this morning declared that "We don't want to pay for Greek luxury pensions."

With an election looming next month, Merkel may find it hard to ignore such feelings.

8.50am: Sorry for the outage there - just crushing a small technical gremlin.

We're getting some good analyst comment on the latest developments in Greece. Here's Gary Jenkins from Evolution Securities:

The €40-45bn bail out package that has so far been talked about is widely seen as being too small as it only covers Greece's funding needs up till January 2011 although the FT reports today that the IMF may be prepared to increase the size of their portion by some €10bn. Obviously the provision of liquidity is vital for Greece in the short term, and the more they are provided with the longer they have to make the necessary fiscal adjustments. But its still debt that needs to be repaid, and there appears to be growing doubts that Greece will be able to avoid some kind of debt restructuring.

My view is that they should be given an amount to get them through the next 3 months, and in that time the IMF carry out a thorough investigation of the Greek numbers to clarify exactly what the budget deficit is and how much realistically Greece will need to borrow over the next couple of years. At least that might allow for an orderly restructuring, if deemed necessary, rather than a complete market meltdown.

At the same time the EU might want to circle the wagons around Portugal, as to lose one sovereign would be unfortunate, but to lose two looks like carelessness…

City veteran David Buik of BGC Partners has also opined:

A very good friend of mine reminded me very succinctly and cogently that the Euro only works if all countries give up financial sovereignty and pool resources for common taxes, budgets and social security. If these boxes are not all ticked, the whole philosophy and ethos of a united Europe crumbles in to dust. It is called make up your mind. Greece will need help for at least 2 more years plus an increased amount of funding. If Greece defaults gargantuan losses could be incurred. Greece is the catalyst, Portugal has been downgraded and who follows – Spain and Italy? Though not in the EU, the UK, with its stubborn refusal to deal with its mountain of debt, looks very vulnerable.

8.12am: Looks like London traders got most of their panic out of the way yesterday. The FTSE 100 is down just 7 points in the first few minutes of trading at 5596 points, shaving a bit more of the nation's pension pots after yesterday's 150-point fall.

Across Europe, though, the picture is darker. Portugal's leading stock index dropped 5.3% at the open, as investors reacted badly to S&P's decision to cut its credit rating by two notches.

This is front page news on Portugal's newspapers, with one tabloid raging that the country is under attack by speculators.

Spain's IBEX 35 index fell by 1% at the start of trading, reflecting concerns that this crisis could head West from Athens.

Worth remembering that last week, the IMF warned that the banking sector would be badly hit by a crisis in the sovereign debt markets.

The biggest fallers in London today are the banks, with RBS losing almost 4% to 53.8p and Lloyds Banking Group down 2.6% at 66.4p. Not good news for the taxpayer, which was just getting used to making a (paper) profit on its investments in these nationalised banks. We're probably still just in the black at the prices, though.

Our banking correspondent Jill Treanor reminds me that Lloyds said yesterday that its exposure to Greece was 'minimal'.

7.47am: Those of a delicate disposition should probably avoid this article from Reuters star blogger Felix Salmon. If your nerves are steel-tipped, though, plunge in.

Salmon has elegently blogged the highlights of a panel discussion in Los Angeles yesterday afternoon. This included noted economist Nouriel Roubini, who illustrated just why he earned the nickname Dr Doom.

According to Roubini, Greece is simply incapable of cutting its spending by enough to make a serious debt in ite debt. That makes a default inevitable, along with ejection from the euro, at which point Spain is hauled into the crisis. As Salmon reports:

Nouriel's base case, then, is Argentina 2001: after all, Greece has a much higher debt-to-GDP ratio, much higher deficit-to-GDP ratio, and much higher current-account deficit than Argentina had back then. And if that's the base case, there's no way that Greek debt should be trading anywhere near its current levels.

Of course, this being Nouriel, it goes downhill from there: if Greece is worse than Argentina, he says, then Spain is worse than Greece. Its housing bubble and bust has left the banking sector much weaker than Greece's; its unemployment situation, especially with the under-30 crowd, is much worse than Greece's; and the cost of any Spain bailout would be so much more enormous than the cost of a Greek bailout as to be almost unthinkable. The only thing that Spain has going for it is that it isn't quite at the edge of the abyss yet; if it gets its political act together and implements tough fiscal and structural reforms now, it can save itself. But clearly no one saw that happening, given Spain's political history over the past 20 years.

Hmmm - huge national debt, a deflated housing bubble, a battered banking sector, high unemployment, calls for tough reform going undeeded at the crucial moment. Does this sound like a certain other country to you?

7.42am: What's the mood in Greece? Financial TV channel Bloomberg just went to their Athens correspondent, who declared that: "There really is a sense of fear and apprehension here, even bordering on panic."

That should do wonders for nerves in the City this morning ahead of the start of trading.

7.35am: A quick look at the currency markets, and the euro is trying to clamber back off the mat after hitting a one-year low yesterday. The European single currency is trading around $1.319 as I type. Against sterling, one euro is currently worth 86.5p.

7.27am: My Reuters terminal is flashing that Greece's financial regulator has just banned short selling on the Athens stock market until June 28. This will prevent traders from selling shares they don't own, with the intention of buying them back cheaper in the future. This appears to cover all listed companies, and follows yesterday's 6% drop on the main Athens index.

In a brief statement, the Capital Market Commission said it took the decision "having considered the extraordinary conditions in the Greek market".

Greek banks have been under the cosh in recent days, losing an average of 9% yesterday.

You may remember that the Financial Services Authority brought in a similar ban in the UK in September 2008 following the collapse of Lehman Brothers, in an attempt to protect British banks from attack. The move, which just covered financial stocks, had some success, but couldn't prevent the partial nationalisation of Royal Bank of Scotland and Lloyds a few months later.

7.17am: The Asian stock markets have taken the Greek junk bond downgrade badly. In Tokyo, the Nikkei index has tumbled 2.4% overnight, shedding 269.27 points to 10,943.39 points. Exporters such as Canon were particularly hammered as investors bailed out of shares.

And in Hong Kong, the Hang Seng index has dropped 1.26%.

This comes after a heavy selloff on Wall Street, where the Dow lost 1.9% or 213 points to 10,991.99.

London was the first market to react to S&P's blow, suffering its biggest fall of the year with a 150 point plunge to 5603. Spread betters we've contacted this morning are anticipating further falls, but probably around 20 points while traders weigh up the situation.

As Ben Potter of IG Markets explained:

Further modest losses are expected in Europe at the open but it's going to be a case of watching to see if traders can now hold their nerve amidst some reasonable earnings data or whether this is indeed the start of the next correction.

7.00am: Kalimera! That's 'Good morning' in Greek, although it's probably not a phrase you'd hear much in Athens today as Greece comes to terms with yesterday's alarming developments.

To quickly recap, the €45bn IMF/EU rescue plan for Greece hit major problems yesterday when Standard & Poor's downgraded Greek debt to junk bond status. With Germany dragging its feet over supporting the bailout, there are fears that Greece may default on billions of euros of loans.

But that's just the start. Portugal is under fire, having also been downgraded by the ratings agency. The talk in the City is of a 'race to default', with indebted nations scrambling to restructure their debt piles. And what would that do for the Euro?

This phase of the financial crisis is going to last for months, but today will be a critical day - so we'll be blogging the latest developments and reaction for the next few hours here. Let us know what you think below.

http://www.guardian.co.uk/business/blog/2010/apr/28/greece-financial-crisis