European Crisis: Cameron, King, Draghi Warn of Eurozone Break-up

• Global markets slump, Europe mixed as investors seek saftey in advance of worst-case scenario for Greece
• Parade of European leaders warn of Greek exit consequences
• New elections set for 17 June; Senior Magistrate Panagiotis Pikrammenos named interim Prime Minister
• Bank of England Governor Mervyn King says Europe "Tearing itself apart"
• Gold now trading in bear market after sharp declines overnight

1445 GMT: Merkel "statement", in case anyone was wondering, is related to a domestic issue: the appointment of a new Environment Minister. Nothing on Greece or the Eurozone, as far as I can tell.

Not the worst thing in the world for a headline-exhausted market holding onto modest gains across the board. FTSE Eurofirst 300 up 2.29 points, or 0.23 percent, to session high 999.99 (really!!).

1435 GMT: Britain's benchmark FTSE 100 turns green for the day, up 1.96 points, or 0.04 percent, to 5,439.58. No mean feat in a session where the Bank of England Governor slashed his growth forecast for the UK economy to 0.8 percent from 1.2 percent, gold touched a bear-market trough of $1,532 and a parade of European leaders - including Britain's Prime Minister David Cameron - sounded-off on the once-taboo topic of a break-up of the Eurozone.

King's reference to the Eurozone crisis - and it's potential implications for a deeper round of stimulus from the Bank if the worst were to happen - gave UK government Gilts a lift and took the benchmark 10-year yield to an all-time low 1.82 percent. The effective bet is that larger programme of so-called quantitative easing will provide an extra, deep-pocketed buyer for the government's outstanding debt stock.

What's odd, of course, is how that dovetails with the Bank's view on inflation, which it expects will continue to overshoot the Treasury's preferred 2 percent target for at least another 16 months. Inflation is the "enemy of bonds" because faster price rises erode the present value of future fixed payments (which is what bonds are all about).

1350 GMT: Italy's FTSE MIB is holding up firmly, up 115 points, or 0.9 percent, for the day and trading at 13,421.2

An IMF assessment (part of its regular annual economic survey) was fairly flattering to Prime Minister Mario Monti's efforts to push through labour market reforms and tackle fiscal consolidation. Still, Europe department head Reza Moghadam told reporters in Rome that the IMF expects a 1.9 percent pullback in output this year, extending Italy's longest recession in at least half a decade. Moghadam also added that Italy's banks remained pressured by growth concerns and the hangover of sovereign debt holdings.

Italy's banking lobbyists, the ABI, said corporate lending fell 0.7 percent in March from the same period last year while the sector's foreign deposit base was down 20 percent year-on-year (it was down 17 percent year-on-year in February). The figure stood at €360bn on 1 April.

1335 GMT: Comments are coming thick and fast across the Eurozone: European Central Bank President Mario Draghi, after initially telling reports he did not wish to comment on Greece's future in the single currency, tells reporters in Frankfurt he has a "stong preference" for Greece remaining in the Euro and that the current legal and political framework "does not forsee" anything on an exit.

Angela Merkel, it is being reported, will make a statement on the situation at 1430 GMT.

1325 GMT: Dallara, speaking in Dublin, ups the rhetorical ante to 11 (on a ten-scale dial) with his view that a Greek exit would fall somewhere between a "catastrophic" event and "armageddon".

1235 GMT: Equity markets getting a much-need boost after better-than-expected housing data from the United States. Builders broke ground on new homes in April at a 717,000 annual clip. That's up 2.6 percent from March and well ahead of Street forecasts.

FTSE Eurofirst 300 has turned the corner and now trades a full point (0.12 percent) into the green for the day (998.85)

Bond yields at the edge of Europe also improving: Spain's benchmark 10-year firmer at 6.28 percent while Italy's slides back under 6 percent to 5.96 percent.

1225 GMT: Almost on cue, Charles Dallara, who heads the Institute of International Finance, says the contagion costs from a Greek exit would be "immense" for the rest of Europe. He says an exit is possible, but would not characterize it as either likely or inevitable.

12:15 GMT: Some mid-day number crunching on the costs of a "Grexit": Societe Generale pegs a back-of-the-envelope figure of around €430bn - 4.5 percent of Euro-area GDP - in direct costs associated with defautls on existing loans to the public and private sectors (while making some adjustments for loans secured by other collateral). Meanwhile, it estimates a resultant 25 percent to 50 percent collapse in Greece's economic output. My own slide rule puts that at between €53bn and €108bn.

"The direct costs of Greek euro exit would be huge forGreece, but manageable for the rest of the euro area. Ourconcern is contagion. A speedy and forceful responsewould be required to stem this and the good news is tha an extensive toolbox is already in place ... It's a questionof political will, but the bad news is that judging from theoutcome of Monday's Eurogroup, euro policymakers mightneed to peer down into the deep abyss of euro break-up(once again) before forceful action is taken."

1145 GMT: Barroso comments hitting the wires from Brussels: Greek people must take election decision "fully informed" of consequences, he says, adding that the "ultimate resolve" of remaining in the Eurozone must come from Greece itself.

This shift in language, whether by Barroso, Merkel, Schaeuble or Juncker, is fascinating. Greeks *clearly* don't want to leave the Euro. Not a single poll demonstrates a desire for the Drachma. Tsipras will very likely be given a mandate to renegotiate terms of a previous deal within the context of remaining inside the single currency union. Not unlike what Hollande did yesterday in Berlin.

The EU leaders' shift in tone seems like a rhetorical effort to absolve themselves of blame or responsibility for Greece's eventual exit. In other words, EU leaders are trying to set the terms of the political process in a sovereign nation.

That's edgy stuff.

1130 GMT: CNBC Europe's Silvia Wadhaw scores an impressive sit-down with German Chancellor Angela Merkel, who tells the veteran ECB and financial markets reporter: ""I want, just like Jean-Claude Juncker, that Greece stays in the euro. I think that would be good for Greece and for all of us."

1125 GMT: Greece sets new election date of 17 June. President Karolos Papoulias appoints senior judge Panagiotis Pikrammenos as interim Prime Minister.

Reuters reporting results of VPRC Poll: Syriza ahead with 20.3 percent: New Democracy second with 14.2 percent. PASOK third with 10.9 percent.

1110 GMT: EU President Jose Manuel Barroso wil make statement on Greece from Brussels in around 20 minutes time.

1055 GMT: Greek stocks back into the red: Athens Stock Exchange General Index down on the day to 562.44 and back to testing November 1992 lows

Bond markets now valuing Greece's 10-year "post-PSI" debt at 13.5 percent of face value, giving the benchmark 2023 debt a yield to maturity of 30.44 percent.

1048 GMT: Update from France's earlier €8bn bond auction: Agence France Tresor, the country's debt managment agency, says the €3.651bn five-year portion of the sale drew the lowest-ever auction yield of 1.72 percent. Not a bad debut for M. Hollande.

1030 GMT: The FOREXLive blog says the European Central Bank is considering freezing lending to Greek banks until it's satisfied with the sector's efforts on recapitalization. If that funding lifeline is suspended, a run on Greek banks is entirely possible.

Euro STOXX Banking Sector Index turns negative, now down 0.25 percent on the day at 81.94

1025 GMT: Mervyn King's tone during the Q&A following the inflation report is strikingly frank - particularly on Europe. The BoE Governor says the Eurzone is "tearing itself apart" and warns that many European banks are too dependent on European Central Bank funding.

What's also interesting is King's implicit support to the recent (well, recently expressed, anyway) views about the UK's economic potential from Chancellor George Osborne. He (not unreasonably) thinks output will hamstrung by Europe's lack of growth and financial market contagion. King's collection of statements from today's press conference (EU problem is one of solvency, not liquidity; Germany yet to face up to needed rebalancing; major problems ahead for Eurozone, regardless of what happens to the single currency) offer a detailed defence of the Chancellor's thesis.

1000 GMT: Germany's benchmark €4bn bond auction - what the market calls a "tap" in that is adds to an already existing bond - secures the lowest 10-year borrowing costs on record for the Bundesbank of 1.47 percent. Investors bid just about €6.128bn for the €4.1bn sold.

0950 GMT: King's Inflation outlook and downbeat growth assessment drive (2012 growth marked down to 0.8 percent from February's 1.2 percent assumption) Sterling into the ground: pound hits $1.5909 against the US dollar at 79.98 against the beaten-up single currency. Gilts are stronger, however, pushing benchmark 10-year yield to another all-time low 1.84 percent.

FTSE 100 down 0.88 percent to 5,389.63, nearing a 6-month low.

0943 GMT: Bank of England Governor Mervyn King is speaking to reporters on Threadneedle Street after release of his Quarterly Inflation Report and claims "contingency plans for a Eurozone breakup" are being discussed by the BoE and have been for some time.

The Bank expects inflation to remain above its preferred 2 percent target well into 2013 (nearly a year longer than in its previous assessment) and that the UK economy is unlikely to get back to pre (2008) crisis levels until at least 2014.

0935 GMT: An oddly counter-intuitive trip to the bond markets this morning for the French Tresor. The one-day old government of Francois Hollande added €8bn to its not-insignificant debt pile in a 4-stage sale of short-dated paper that was remarkably well-received. The benchmark 2-year and 5-year portions of the auction priced to yield 0.74 percent and 1.72 percent respectively, both improvements from previous debt sales of similar maturities.

Traders seem to think investors are playing the "German risk at French rates" trade in buying paper with what they call "pick-up", in other words extra yield with not a lot of extra risk (even though its official debt rating sits one-notch below Germany's Triple-A standard).

0925 GMT: Skipping around a bit to try and find a tighter narrative on today's trading - and each time I do I end up circling around the banks. Thomson Reuters data suggests Greek banks have lost around 33 percent of thier deposit base since this crisis began, taking available cash levels to around €160bn. Greece's President, Karolos Papoulias, said Tuesday that as much as €700m has been withdrawn on one single day this week, citing figures from his chief central banker, George Provopoulos.

0905 GMT: Another tiny morsel of "not terrible" news: Eurozone inflation hits analysts' estimates, accelerating 0.5 percent in April from March and 2.6 percent from the same period last year. Core inflation (ex-food, energy, tobacco and alcohol) is oddly firm on the month at 0.5 percent but tame at 1.6 percent for the year.

The figures won't likely spook the inflation-fixated European Central Bank into pulling back on any of thier current operations - although whether the Bank can step-up and provider deeper liquidity to specific banking sectors (ie Spain and Italy) remains to be seen. The inflation figures today, if nothing else, lean that discussion closer to the concept of "desire" and opposed to "ability".

0900 GMT: Irish Finance Minister Michael Noonan says Greece needs a referendum on staying in the Euro. His opposite number in Germany, Wolfgang Schaeuble, has said pretty much the same thing yesterday. In effect, that's what the next vote is going to be for everyone *but* the Greeks who cast thier ballots.

Athens News says the latest polls indicate a 32.5 percent share of the vote for Syriza, easily enough for them to claim a majority in the 300 seat parliament and govern with a strong mandate. Presumptive Prime Minister Alexis Tsipras has vowed to null the agreements linked to the collective €240bn in bailout cash it's been promised, but wants (along with 78 percent of Greeks) to remain inside the single currency.

So, it seems that once again, the world outside of Greece is clamouring for finality but seems,. once again very unlikely to get it.

0850 GMT: It's about the Europe, stupid. Not you, of course, but a paraphrasing of the famous pre-election strategy devised by James Carville, Bill Clinton's former poliltical adviser. Sterling barely budges and the FTSE shruggs indifferently after a surprise fall in UK jobless claims (-13,700, the biggest since July 2010) and an unemployment rate of 8.2 percent. Pound sill under $1.60.

To wit, credit default swaps on German debt have rise to 6-month high 100 basis points, according to data provider Markit, meaning investors are now paying €100,000 each year for five years to insure €10m in Bunds from default.

0815 GMT: Spain's Prime Minister Mariano Rajoy, perhaps sensing the oncoming wave of investor ire, tells reporters in Madrid that a Greek euro exit would be a "major error" and that his country may face "astronomical" borrowing costs as a result.

0805 GMT: European stock markets have slid for most of the first hour of the session, with Britain's FTSE 100 leading the way down (it's construction is ill-suited to today's volatility: banks and commodity producers are the heaviest "weights" inside the index and the twin impacts of steep falls in oil and gold alongside a big decline in financial shares is hitting it hard).

FTSE 100 is now down about 1.3 percent to 5,366.86. It's interesting to note that since the Greek elections on 6 May, London's benchmark has given back more than 5.26 percent, outpacing a 4.7 percent decline for the FTSE Eurofirst 300 over the same period.

0750 GMT: Barclays notes very interesting dimension in the Spanish debt market that could exacerbate its current financial woes. Only around 20 percent of its €500bn in outstanding debt is held by non-Spanish investors (hedge funds, institutions, etc).

The bulk of Spain's debt stock is held by domestic investors and the European Central Bank, neither of whom are active "day-to-day" participants in the market. This increases the likelihood of price volatility and in theory establishes the basis for a deepening of the vicious circle of rising bond yields and further fiscal stresses.

Germany's 10-year Bund yield is trading at 1.44 percent.

0745 GMT: Spain is clearly in the crosshairs today as investors look further down the road from what's seemingly now considered a fait-accompli: Greece's departure from the single currency.

Spain's IBEX 35 is down 1.67 percent to 6,587.8, the lowest in at least nine years, while 10-year yields are trading at a Euro-area record 6.51 percent. The exra yield investors demand to hold Spanish bonds instead of bunds is now past 500 basis points - a full 5 percent.

It's interesting to see how official - and unoffical - conversations regarding Greece's exit have evolved from "unthinkable" to "manageable". The former might have been obstinate, the latter more likely wishful thinking.

Dutch financial daily Het Financielle Dagblad is reporting that the European Central Bank is pulling back funding from Greek banks because they're uncomfortable with the lack of capitalisation and will continue to withdraw support until the Hellenic Central Bank provides protections. ECB liquidity has been halved from January's €73bn, the paper reported.

0725 GMT: The bond markets are back in focus as the epicenter of the ongoing European crisis sets today's tone: Greece's benchmark 10-year bonds are now trading at a 30 percent yield. Effectively putting the cash value close to 10 cents on the euro.

Across the region, bond traders are marking yields higher in advance of risks - both perceived and real - that a Greek default will be impossible to isolate. Spain's benchmark 10-year bonds are getting thumped, lifting the yield to 6.51 percent, a 14 basis point increase. Italy's 10-year bonds are chasing, too, rising 12 basis points to 6.15 percent.

In the case of Spain, the figures are particularly troubling, given the 7 percent threshold that triggered EU bailouts for Greece and Ireland in the past. Spain's effective 10-year borrowing costs have risen around 70 basis points in less that two weeks, so it's no stretch of the imagination to bet that the could breach 7 percent at ay given time.

Adding to this concern is the assumption the several - if not all - of its major banks and financials services firms will soon have their credit ratings slashed by Moody's Investor's Service as part of its global overhaul. Italy was hit earlier this week and Spain's turn could be within days, according to local media reports.

Save-haven flows are pouring into UK gilts, taking the benchmark 10-year yield to another all-time low of 1.875 percent. Bunds

0710 GMT: European shares open with sharp declines from yesterday's already weak closing figures: FTSE Eurofirst 300 slides 0.8 percent in immediate trading to 989.35. Similar declines recorded across the major bourses in Europe, including a 0.9 percent drop in Germany's benchmark DAX.

In London, the FTSE 100 leads the decliners with a 1.2 percent drop after the opening bell. The pound dipped below 1.6 to a four-month low $1.5949 against the US dollar.

Last night's trading in Asia was predictably volatile, as investors had their first full session to react to the collapse of Greece's interim government and the call for new elections. Gold tumbled to a four-month low and is now trading in 'official' bear market territory (that is to say it's down 20 percent from its previous peak $1,921 an ounce back in September). Gold touched $1,532.09 during Asian trading hours.

Both the MSCI ex-Japan index, the best measure of Asia-Pacific equity performance, and Japan's benchmark Nikkei 225 slumped to4-month lows as investors piled into the US dollar and other safe-haven assets. The dollar index (a trade-weighted basket) hit a four-month high of 81.548.

Last night's trading in Asia was predictably volatile, as investors had their first full session to react to the collapse of Greece's interim government and the call for new elections. Gold tumbled to a four-month low and is now trading in 'official' bear market territory (that is to say it's down 20 percent from its previous peak $1,921 an ounce back in September). Gold touched $1,532.09 during Asian trading hours.

Both the MSCI ex-Japan index, the best measure of Asia-Pacific equity performance, and Japan's benchmark Nikkei 225 slumped to4-month lows as investors piled into the US dollar and other safe-haven assets. The dollar index (a trade-weighted basket) hit a four-month high of 81.548.