Greece’s PM Alexis Tsipras has announced that the Greek banks are to remain closed and capital controls will be imposed.
Speaking after the European Central Bank (ECB) said it was not increasing emergency funding to Greek banks, Alexis Tsipras said Greek deposits were safe.
Greece is due to make a €1.6 billion payment to the International Monetary Fund (IMF) on June 30 – the same day that its current bailout expires.
The country risks default and moving closer to a possible exit from the eurozone.
Greeks have been queuing to withdraw money from cash machines over the weekend, and the Bank of Greece said it was making “huge efforts” to keep the machines stocked.
Greek banks are expected to stay shut until July 7, two days after Greece’s planned referendum on the terms it had been offered by international creditors for receiving fresh bailout money.
The Athens stock exchange will also be closed on June 29.
Eurozone finance ministers blamed Greece for breaking off the talks, and the European Commission took the unusual step on Sunday of publishing proposals by European creditors that it said were on the table at the time.
Greece described creditors’ terms as “not viable”, and asked for an extension of its current deal until after the vote was completed.
“[Rejection] of the Greek government’s request for a short extension of the program was an unprecedented act by European standards, questioning the right of a sovereign people to decide,” Alexis Tsipras on June 28 said in a televised address.
“This decision led the ECB today to limit the liquidity available to Greek banks and forced the Greek central bank to suggest a bank holiday and restrictions on bank withdrawals.”
Alexis Tsipras said he had sent a new request for an extension to the bailout.
“I am awaiting their immediate response to a fundamental request of democracy,” he said.
Following the news from Greece the euro fell by nearly two US cents against the dollar in early Asia Pacific trade, Reuters reported.
The announcement comes after a particularly turbulent few days for Greece.
The current ceiling for the ECB’s emergency funding – Emergency Liquidity Assistance (ELA) – is €89 billion. It is thought that virtually all that money has been disbursed.
Greece has “a realistic” debt deal proposal, PM Alexis Tsipras has said.
“We have submitted a realistic plan for Greece to exit the crisis,” he said.
Alexis Tspiras said the plan included “concessions that will be difficult”.
The prime minister’s statement follows talks in Berlin attended by the heads of both the International Monetary Fund (IMF) and the European Central Bank (ECB).
IMF chief Christine Lagarde and ECB president Mario Draghi presence at the meeting between German Chancellor Angela Merkel and France’s Francois Hollande underlines the seriousness of the talks.
Reports suggest the meeting was aimed at coming up with a “final proposal” to issue to Athens.
Howevr, Alexis Tspiras, who was not included in the meeting, said he had not yet been contacted by the IMF and European officials.
“We are not waiting for them to submit a proposal, Greece is submitting a plan – it is now clear that the decision on whether they want to adjust to realism… the decision rests with the political leadership of Europe,” he added.
A €300 million ($330 million) payment from Greece to the IMF is due on June 5.
There are fears Greece does not have the necessary funds to pay and could default on the debt, ultimately leading to its exit from the eurozone.
Friday’s payment is the first of four totaling €1.5 billion that Greece is due to pay to the IMF in June, and it is understood that the payments could be all bundled together and repaid in a single transaction at the end of the month.
If Greece decides to repay the funds in this way, it would have to notify the IMF, but it has not yet done so.
Greece remains in a four-month long deadlock with international creditors over the release of €7.2 billion in remaining bailout funds.
European lenders as well as the IMF are pushing for greater austerity reforms in return for the cash, which the Greek government has so far refused to make.
Syriza parliamentary spokesman Nikos Filis reiterated that the government would not sign an agreement that was incompatible with its anti-austerity program.
Some 350 people arrested and dozens injured as anti-austerity demonstrators clashed with police in Frankfurt, Germany.
Police cars were set alight and stones were thrown in a protest against the opening of a new base for the European Central Bank (ECB).
Violence broke out close to Frankfurt’s Alte Oper concert hall hours before the ECB building’s official opening.
Thousands of “Blockupy” activists were due to take part in a rally.
Organizers were bringing a left-wing alliance of protesters from across Germany and the rest of Europe to voice their anger at the ECB’s role in austerity measures in EU member states, most recently Greece.
The ECB, in charge of managing the euro, is also responsible for framing eurozone policy and, along with the IMF and European Commission, has set conditions for bailouts in Ireland, Greece, Portugal and Cyprus.
Police set up a cordon of barbed wire outside the bank’s new 600ft double-tower skyscraper, next to the River Main.
But hopes of a peaceful rally were dashed as clashes began early on Wednesday, March 18.
Tires and trash bins were set alight and police responded with water cannon as firefighters complained they were unable to get to the fires to put them out. One fire engine appeared to have had its windscreen broken.
Activists said many protesters had been hurt by police batons, water cannon and by pepper spray.
Police said as many as 80 of their officers had been affected by pepper spray or an acidic liquid. Eight suffered injuries from stone-throwing protesters.
Police spokeswoman Claudia Rogalski spoke of an “aggressive atmosphere” and the Frankfurt force tweeted images of a police van being attacked. They were braced for further violence as increasing numbers of activists arrived for the rally.
Blockupy accused police of using kettling tactics to cordon off hundreds of protesters and appealed for supporters to press for their release.
As the number of protesters grew in the streets away from the new ECB building, the bank’s president, Mario Draghi, gave a speech marking its inauguration.
The new headquarters, which had been due to open years earlier, cost an estimated €1.3 billion ($1.4 billion) to build and is the new home for thousands of central bankers.
Blockupy activists said on their website that there was nothing to celebrate about the politics of austerity and increasing poverty.
The European Central Bank (ECB) has agreed to raise the emergency funding available to Greek banks to €68.3 billion.
The €3.3 billion increase in the so-called Emergency Liquidity Assistance (ELA) is critical for Greece’s banks.
Depositors have been taking savings out of the country, depleting the banks’ access to cash to lend.
However, the Greek central bank is said to have requested an additional €10 billion of emergency funding.
The ECB had already raised the amount available to Greek banks by €5 billion to about €65 billion last week.
The deal will give Athens breathing space to negotiate a loan deal with its European creditors.
Greece is asking the eurozone for a six-month extension of its European loan, a Greek government official said on February 18. It would not be a renewal of the current bailout agreement, which includes strict austerity measures.
On February 16, Greece rejected a plan to extend its €240 billion bailout, describing it as “absurd”.
Greece is likely to run out of money if a deal is not reached before the end of February.
“We should extend the credit program by a few months to have enough stability so that we can negotiate a new agreement between Greece and Europe,” Greek Finance Minister Yanis Varoufakis told Germany’s ZDF.
Government spokesman Gabriel Sakellaridis confirmed that meant Yanis Varoufakis would be asking for a six-month extension to Greece’s current loan.
Gabriel Sakellaridis told Greece’s Antenna TV: “Let’s wait today for the request for an extension of the loan contract to be submitted by finance minister Varoufakis.
“All along deliberations are going on to find common ground, we want to believe that we are on a good path. We are coming to the table to find a solution.”
He added the Greek government would not back down on issues that it considered non-negotiable.
German Finance Minister Wolfgang Schaeuble dismissed the Greek proposal, telling broadcaster ZDF on February 17: “It’s not about extending a credit program but about whether this bailout program will be fulfilled, yes or no.”
An impasse over the selection of a new president triggered an early election last month that swept Syriza into government.
The Greek stock exchange rose 3% on Wednesday in morning trading in Athens as news of the loan extension application emerged, but later closed up just 1.1%.
The eurozone has given Greece until February 20 to decide if it wants to continue with the current bailout deal.
Greece wants to replace the bailout with a new loan that it says would give it time to find a permanent solution to the debt crisis.
On February 17, Greek PM Alexis Tsipras called for a vote in the Greek parliament on whether to scrap the austerity program on February 20, the same day as the eurozone deadline.
“We will not succumb to psychological blackmail,” Alexis Tsipras told parliament.
“We are not in a hurry and we will not compromise.”
JP Morgan claimed over the weekend that €2 billion worth of deposits was flowing out of Greek banks each week. It estimated that if that were to remain the case, they would run out of cash to use as collateral against new loans within 14 weeks.
The bank’s estimate is based on a calculation that a maximum of €108 billion of deposits is left in Greek banks.
The most up-to-date figures from the Greek central bank show deposits dropped 2.4% month-on-month in December to €160.3 billion from €164.3 billion, marking the third consecutive monthly fall.
Dutch Finance Minister Jeroen Dijsselbloem, who is also chairing the Eurogroup meetings of eurozone finance ministers, warned on Monday night there were just days left for talks.
Jeroen Dijsselbloem said it was now “up to Greece” to decide if it wanted more funding or not.
Greece has proposed a new bailout program that involves a bridging loan to keep the country going for six months and help it repay €7 billion of maturing bonds.
The second part of the plan would see Greece’s debt refinanced. Part of this might be through “GDP bonds” – bonds carrying an interest rate linked to economic growth.
Greece also wants to see a reduction in the primary surplus target – the surplus the government must generate (excluding interest payments on debt) – from 3% to 1.49% of GDP.
In Greece last week, two opinion polls indicated that 79% of Greeks supported the government’s policies, and 74% believed its negotiating strategy would succeed.
The European Central Bank (ECB) has unveiled an €1.1 trillion ($1.3 trillion) plan to boost eurozone economy.
The ECB will buy bonds worth €60 billion ($72 billion) per month until the end of September 2016 and possibly longer, in what is known as quantitative easing (QE).
The bank has also said eurozone interest rates are being held at the record low of 0.05%, where they have been since September 2014.
ECB president Mario Draghi said the program would begin in March.
The eurozone is flagging and the ECB is seeking ways to stimulate spending.
Earlier this month, figures showed the eurozone was suffering deflation, creating the danger that growth would stall as businesses and consumers shut their wallets, as they waited for prices to fall.
Mario Draghi said the program would be conducted “until we see a sustained adjustment in the path of inflation”, which the ECB has pledged to maintain at close to 2%.
He told a news conference the ECB would be purchasing euro-denominated investment grade securities issued by euro-area governments and agencies and European institutions.
However, “some additional eligibility criteria” would be applied in the case of countries under an EU and International Monetary Fund (IMF) adjustment program.
The value of the euro fell following Mario Draghi’s announcement, falling by more than a cent against the US dollar to $1.1472.
Lowering the cost of borrowing should encourage banks to lend and eurozone businesses and consumers to spend more.
It is a strategy that appears to have worked in the US, which undertook a huge program of QE between 2008 and 2014.
The UK and Japan have also had sizeable bond-buying programs.
Mario Draghi said the ECB’s own program had been taken “to counter two unfavorable developments”.
“Inflation dynamics have continued to be weaker than expected,” he said, with most inflation indicators at or close to historical lows.
“Economic slack in the euro area remains sizeable and money and credit developments continue to be subdued,” he added.
At the same time, it was necessary to “address heightened risks of too prolonged a period of low inflation”.
Mario Draghi said there had been a “large majority” on the ECB’s governing council in favor of triggering the bond-buying program now – “so large that we did not need to take a vote”.
Up until now, the ECB has resisted QE, although Mario Draghi reassured markets in July 2012 by saying he would be prepared to do whatever it took to maintain financial stability in the eurozone, nicknamed his “big bazooka” speech.
Since then, the case for quantitative easing has been growing.
In advance of the ECB’s announcement, there had been speculation that the central bank would not actually buy any bonds itself, but would invite the central banks of eurozone member governments to do so.
In the event, Mario Draghi said only 20% of the new asset purchases would require national central banks to shoulder risks outside their own borders.
The euro has reached a nine-year low against the US dollar as investors predicted the European Central Bank (ECB) may act to stimulate the economy.
The European currency fell by 1.2% against the dollar to $1.1864, marking its weakest level since March 2006, before recovering slightly to $1.19370.
The drop follows ECB president Mario Draghi’s comments indicating the bank could soon start quantitative easing (QE).
Greek political turmoil also weighed on the currency.
Although the ECB has already cut interest rates to a record low level, and also bought some bonds issued by private companies, a full-scale program of QE has not yet been launched.
On January 2, Mario Draghi hinted in a newspaper interview that the ECB might soon start a policy of QE by buying government bonds, thus copying its counterparts in the UK and US.
The purpose would be to inject cash into the banking system, stimulate the economy and push prices higher.
In an interview with German newspaper Handelsblatt, Mario Draghi said: “We are making technical preparations to alter the size, pace and composition of our measures in early 2015.”
Political turmoil in Greece also weighed on the euro, with fears that the general election on January 25, could see the anti-austerity, left-wing Syriza party take control of the country.
The possibility has sparked fears about whether Greece will stick to the terms of its international bailout and stay in the eurozone.
On January 3, German magazine Der Spiegel magazine said Germany believes the eurozone would be able to cope with a Greek “exit” from the euro, if the Syriza party wins the Greek election.
Reacting to the Der Speigel report, a spokesman for German Chancellor Angela Merkel said there was no change in German policy and the government expects Greece to fulfill its obligations under the EU, ECB and IMF bailout.
France’s President Francois Hollande also commented, saying it was now “up to the Greeks” to decide whether to remain a part of the single currency.
“Europe cannot continue to be identified by austerity,” Francois Hollande added, suggesting that the eurozone needs to focus more on growth than reducing its deficit.
Analysts said the euro was likely to remain volatile for the next few weeks.
The European Central Bank (ECB) has announced new measures aimed at stimulating the eurozone economy, including negative interest rates and cheap long-term loans to banks.
The ECB cut its deposit rate for banks from zero to -0.1%, to encourage banks to lend to businesses rather than hold on to money.
It also cut its benchmark interest rate to 0.15% from 0.25%.
The ECB is the first major central bank to introduce negative interest rates.
It has been tried before in smaller economies. Sweden and Denmark, who are both outside the Single Currency, attempted to use negative rates in recent years with mixed results.
Analysts said in Sweden it had little discernible impact; in Denmark it did have the effect of lowering the value of the currency, the Krone, but according to the Danish Banking Association it also hit the banks’ bottom line profits.
The ECB’s president, Mario Draghi, also announced other measures.
Long term loans are to be offered to commercial banks at cheap rates until 2018. These loans would be capped at 7% of the amount that the individual banks in question lend to companies. Thus, the more the banks lend to companies, the more money they can borrow cheaply from the ECB.
The ECB cut its benchmark interest rate to 0.15 percent from 0.25 percent
It is also doing preliminary work that could lead to buying bundles of loans that are made to small businesses in the form of bonds. This is being seen as a step towards providing companies with credit through the financial markets.
Mario Draghi said the ECB’s policymakers unanimously agreed to consider more unconventional measures to boost inflation if it stays too low. The ECB stopped short of instituting a large asset-buying program like the quantitative easing (QE) undertaken by the US Federal Reserve. However. Mario Draghi insisted that more would be done, if necessary.
“Are we finished? The answer is no. We aren’t finished here. If need be, within our mandate, we aren’t finished here.” he said.
Mario Draghi said that the whole package of measures was aimed at increasing lending to the “real economy”.
“Now we are in a completely different world,” he said.
Even though some of the measures, like the more to negative rates on deposits, were expected European shares moved higher on the ECB announcement.
The benchmark German DAX 30 index jumped above the 10,000 level for the first time. The CAC 40 in Paris was up 0.8% shortly after the ECB’s comments.
Meanwhile, the euro fell to $1.3558, its lowest level in four months.
Although the danger of deflation in the eurozone is limited, the ECB is concerned that growth is very sluggish and bank lending weak – both of which could potentially derail the fragile economic recovery.
The eurozone economy grew by just 0.2% in the first quarter of the year. Consumer spending, investment and exports are all growing at a slower pace than this time last year.
Inflation in the eurozone fell to 0.5% in May, down from 0.7% in April. This is well below the European Central Bank’s target of just below 2%.
If the eurozone slips into deflation, the fear is that consumers might spend even less because they would expect prices to fall in future months. For the same reason investors could stop investing.
Growth would then be hit and demand would be severely constrained. The large debts amassed by the eurozone’s countries, companies and banks would take longer and be harder to pay off.
Unemployment, which is already at nearly 12% in the eurozone, and much higher in places like Spain, Portugal and Greece, could get even worse.
Mario Draghi emphasized that recovery in the eurozone was not just in the hands of the ECB, but also in the domain of the banks and the governments. He said the banks needed to play their part by increasing lending and reforms by national governments should be carried through.
“In order to strengthen the economic recovery, banks and policy-makers in the euro area must step up their efforts. Banks should take full advantage of this exercise to improve their capital and solvency position, thereby contributing to overcome any existing credit supply restriction that could hamper the recovery.”
“At the same time, policymakers in the euro area should push ahead in the areas of fiscal policies and structural reforms,” he added.
The European Central Bank (ECB) has decided to cut its benchmark interest rate to a new record low amid ongoing worries about the eurozone’s economy.
The widely-expected cut to 0.50% from 0.75% is the first in 10 months.
Worries about eurozone economies were underlined on Thursday with data showing manufacturing activity across the 17-nation bloc shrank in April.
In Germany, the eurozone’s biggest economy, manufacturing contracted for the second month running.
Official data released on Tuesday showed record high unemployment in the eurozone, and inflation at a three-year low.
Ahead of the ECB’s announcement, many economists were forecasting that lower interest rates were likely, but said the fresh data released this week made the case for a cut even stronger.
ECB president Mario Draghi told a news conference that “weak economic sentiment has extended into the spring of this year.”
“Inflation expectations in the euro area continue to be firmly anchored.”
ECB has decided to cut its benchmark interest rate to a new record low amid ongoing worries about the eurozone’s economy
“The cut in interest rates should contribute to support a recovery later in the year,” he added.
There are concerns that the ECB’s low interest rates are not feeding through to those economies most in need of a boost, with potential lenders still worried about the economic health of countries such as Greece and Spain.
“Monetary policy stance will remain ‘accommodative’ for as long as needed,” Mario Draghi said.
“We will monitor very closely all incoming information, and assess any impact on the outlook for price stability.”
Mario Draghi said that the ECB was prepared to cut interest rates further should conditions make it necessary. He also said the central bank was “technically ready” for negative deposit rates.
The euro fell sharply on the comments, losing 0.6% against the pound to 84.135p, edging it towards the recent low of 83.98p that it reached on April 26. Against the dollar, the euro fell below $1.31.
In recent months there have been growing calls for European countries to move away from austerity measures, which critics say are stifling growth. Instead there are calls for a greater focus on stimulus measures.
Both French President Francois Hollande and newly-elected Italian Prime Minister Enrico Letta have urged a reconsideration of austerity policies.
On Thursday, European Council President Herman Van Rompuy said governments must take immediate action to promote growth and the creation of jobs because patience with austerity measures is wearing thin in some countries.
“Taking these measures is more urgent than anything,” he told a conference in Portugal.
“After three years of firefights, patience with austerity is wearing understandably thin.”
A cut in interest rates lowers the costs for troubled banks that have taken emergency loans from the ECB, and could help them repair their finances so they can improve lending. But analysts were divided over whether the cut would have much of an impact.
Purchasing Managers’ Index (PMI) on Thursday highlighted the problems facing many eurozone countries. The index for Germany’s manufacturing sector, which accounts for around a fifth of the economy, fell to 48.1 in April from 49 in March. A reading below 50 indicates contraction.
And in France, Italy and Spain, the eurozone’s next three biggest economies, the PMI data also revealed contractions in manufacturing activity.
For the 17-nation eurozone bloc as a whole, the PMI index fell to 46.7 last month, from March’s 46.8.
“There is nothing here to suggest that manufacturing will turn the corner and stabilize any time soon, putting greater onus on policymakers to act quickly to reinvigorate growth,” said Chris Williamson, chief economist at Markit, which collates the PMI figures.
European finance ministers have reached a deal on rules for supervising eurozone banks, ahead of a new EU summit.
Around 200 of the biggest banks will come under the direct oversight of the European Central Bank, which will act as chief supervisor of eurozone banks.
The agreement – a key step towards banking union – will be put before European leaders later on Thursday.
New rules on prudent banking are seen as vital to bolster the euro, as bank failures triggered the financial crash.
The measures are also aimed at preventing banking failures ending up on the books of eurozone governments.
“We have reached the main points to establish a European banking supervisor that should take on its work in 2014,” said German Finance Minister Wolfgang Schaeuble, after 14 hours of talks ended shortly before dawn on Thursday.
“Piece by piece, brick by brick, the banking union will be built on this first fundamental step today,” said EU Commissioner Michel Barnier.
German Chancellor Angela Merkel welcomed the agreement, telling the Bundestag (lower house of parliament) that Germany’s “core demands” had been secured.
“It cannot be praised too highly.”
She has previously warned against rushing into banking union out of concern that Germany would face further financial demands.
Significantly, a large number of French banks will be supervised by the ECB but rather few institutions in Germany will, because of its fragmented banking industry.
European Commission President Jose Manuel Barroso hailed the deal as “a crucial and very substantive step towards completion of the banking union”.
UK Chancellor George Osborne said the aim of protecting the interests of EU states not signing up to the banking union “has been achieved”.
Under the deal, banks with more than 30 billion euros ($39 billion) in assets will be placed under the oversight of the European Central Bank.
The ECB would also be able to intervene with smaller lenders and borrowers at the first sign of trouble.
Europe’s finance ministers have taken another major step towards closer integration, with a significant transfer of authority from national governments to the ECB.
The EU had already agreed that the ECB would act as chief supervisor of eurozone banks.
But the deal gives the ECB powers to close down eurozone banks that do not follow rules. It also paves the way for the EU’s main rescue fund to come to the direct aid of struggling banks.
It represents the first stage of a banking union – known as a Single Supervisory Mechanism (SSM) – which EU leaders believe can be put in place without having to change EU treaties.
But there have been some legal doubts about the subsequent stages – a joint deposit guarantee scheme and a joint resolution mechanism for winding up broken banks.
The UK, which is not in the eurozone, will not be joining the banking union but has won some protection against being marginalized when key decisions are taken.
The UK and Denmark both have formal opt-outs from the euro.
The other EU states still outside the euro are committed to joining, and can sign up to the banking union in the meantime, although Sweden and the Czech Republic have made clear they will not.
For months, the scope of the ECB’s supervisory powers was the subject of strained negotiations.
France and Germany had been unable to agree the threshold at which the ECB would intervene – with Germany arguing that many of its regional banks were too small to warrant ECB attention.
While the European Central Bank will be responsible for the overall running of the SSM, it will be in close co-operation with the supervisory authorities of member states and the EU-wide European Banking Authority, which creates banking rules across all 27 member states.
The summit’s chairman, European Council President Herman Van Rompuy, will try to get a commitment to launch the SSM in January 2014 at the latest. His vision for far-reaching eurozone integration is set out in a report, which will be the focus of the discussions among EU leaders in Brussels on Thursday.
While banking union is the immediate focus, the report also proposes “contractual” arrangements between eurozone governments and the Commission, to prevent governments delaying, or reneging on, important economic reforms.
EU leaders are likely to avoid any measures that could trigger treaty change before the European elections in mid-2014, because treaty change is nearly always a thorny issue for the EU. It took seven years for the EU to adopt the Lisbon Treaty.
There is strong opposition in Germany and other richer eurozone nations to any further taxpayer-funded bailouts of indebted banks and governments.
Germany’s Constitutional Court has already flexed its legal muscles over eurozone integration.
The European Central Bank (ECB) has revised down its eurozone growth forecasts for 2012 and 2013 as “economic weakness extends into 2013”.
ECB President Mario Draghi said the bank expected the bloc’s economy to shrink by about 0.5% this year, before recovering later in 2013.
He said weak consumer and investor sentiment was weighing on growth.
Earlier, the ECB held the benchmark eurozone interest rate at the record low of 0.75%, as had been expected.
Mario Draghi said rates had been left unchanged due to higher energy prices, rising taxes and the fact inflation fell from 2.5% to 2.2% last month.
Interest rates are the main tool used by central banks to influence demand and therefore prices in the economy.
Mario Draghi said the bank expected inflation to fall below 2% next year. The target rate is below but close to 2%.
Interest rates have been at 0.75% for five months, after July’s cut from 1%.
ECB has revised down its eurozone growth forecasts for 2012 and 2013
The ECB revised down is forecast for the eurozone economic growth in 2013 to between minus 0.9% and plus 0.4%.
For 2014, it forecast growth of between 0.2% and 2.2%.
Mario Draghi said “persistent uncertainty” was weighing on economic activity.
He said the bank continued to see “downside risks”, in particular “uncertainties about the resolution of sovereign debt issues in the euro area, geopolitical issues and fiscal policy decisions in the United States”.
He was referring to the so-called fiscal cliff of automatic spending cuts and tax rises which kick in the new year and which will push the US economy back into recession. US policymakers are trying to agree a way to avoid the cliff.
However, Mario Draghi said a “strengthening global demand and a significant improvement in financial market confidence” would help fuel a recovery later in 2013.
The eurozone is back in recession as austerity measures designed to reduce debt levels continue to undermine demand and confidence.
The economy of the 17-member bloc contracted by 0.1% between July and September, after shrinking 0.2% in the previous three months.
Meanwhile, the unemployment rate is at a record high of 11.7%.
The eurozone was last in recession in 2009, when the economy contracted for five consecutive quarters.
Representatives from the troika of international lenders arrive in Greece on Tuesday to assess its progress towards reducing its huge debts.
They must decide whether Greece is eligible to receive 31.5 billion Euros – the last tranche of a 130 billion Euro ($158 billion) aid package agreed in March.
Athens is behind in its plans to cut spending and debt because its economy is shrinking faster than forecast.
The Greek prime minister is expected to ask for more time to repay its loans.
The International Monetary Fund (IMF), European Central Bank (ECB) and European Commission (EC) make up the troika.
The IMF said it was “supporting Greece in overcoming its economic difficulties” and would work with the country to get it “back on track”.
However, reports over the weekend suggested that the IMF would refuse calls for further aid.
Representatives from the troika of international lenders arrive in Greece on Tuesday to assess its progress towards reducing its huge debts
Greece has promised to reduce its budget deficit to below 3% of annual national income as measured in Gross Domestic Product (GDP) by the end of 2014. At the end of last year, Greece’s overspend was equivalent to 9% of GDP in 2011.
Successive Greek governments have managed to trim 17bn euros from government spending. That has brought the country’s total debt down from more than 160% of GDP to 132% according to official figures released on Monday.
Under the terms of its international loan agreement with the troika, Greece has vowed to reduce its total debt to 120% of GDP by 2020.
However, Prime Minister Antonis Samaras would have had to have raised another 12 billion Euros through higher taxes and the sale of public assets such as the country’s loss-making railways to have met this bailout target.
Still worse, Greece’s economy is shrinking faster than most had forecast. The Bank of Greece expects GDP to shrink 5% this year in its deepest recession since the 1930s.
As a result, economists calculate that Greece may need a third rescue package worth up to 50 billion Euros.
The re-run of general elections and political instability as parties scrambled to form a governing coalition has delayed work by the troika and the government to agree a credible plan to restore the nation’s finances.
A European Commission spokesman said the troika would not be in a position to report its findings and release the final 31.5 billion euro installment of bailout money until September.
“The Commission is confident that the decision on the next disbursement will be taken in the near future, although it is unlikely to happen before September,” he said.
That leaves Greece in a difficult situation. A 3.8 billion euro debt repayment to the ECB falls due on 20 August. Without the troika money, the ECB may be forced to step in to provide temporary aid.
But further debt repayments are due in September so failure to secure the bailout money could push Greece to the brink of insolvency.
If Greece were to default on its outstanding loans that, in turn, could force it to exit the eurozone and return to the drachma.
The term used to refer to the European Union, the European Central Bank and the International Monetary Fund – the three organizations charged with monitoring Greece’s progress in carrying out austerity measures as a condition of bailout loans provided to it by the IMF and by other European governments. The bailout loans are being released in a number of tranches of cash, each of which must be approved by the troika’s inspectors.
The European Central Bank (ECB) has announced it reduces its key interest rate from 1% to 0.75%, a record low for the eurozone.
The move comes as the eurozone economy continues to be weak.
The ECB also cut its deposit rate, from 0.25% to zero.
A cut in the ECB’s deposit rate is designed to stimulate lending between banks, as funds placed with commercial banks overnight are currently receiving 0.3% in interest.
Surveys released earlier this week indicated that the eurozone’s service sector had continued to shrink in June and that business confidence had fallen.
The ECB’s president, Mario Draghi said the eurozone was likely to show little or no growth in the second quarter of the year, but should recover somewhat by the end of the year.
The European Central Bank reduces its key interest rate from 1 percent to 0.75 percent, a record low for the eurozone
Mario Draghi, said the eurozone economy faced risks, but that inflation did not appear to be a threat: “Inflation rate pressure…has been dampened. At the same time, economic growth in the euro area continues to remain weak, with heightened uncertainty weighing on confidence and sentiment.”
At a media conference following the announcement of the decision he was asked it the situation was as bad as in 2008, to which he replied: “Definitiely not. We are not there at all.”
The rate cuts come despite an inflation rate running above the 2% target for the single-currency zone.
But the rate has been sliding recently and is expected to fall to an average of 1.6% next year.
An interest rate below inflation is meant to discourage saving and promote investment, as the interest rate does not keep pace with inflation, meaning the value of the money on deposit is eroded.
The interest rate cut is the third since Mario Draghi became ECB president late last year.
Mario Draghi said the decision on rates was unanimous.
Standard & Poor’s (S&P) has classified Greece as in “selective default” following the deal the country made with its creditors to reduce the debts.
S&P rating agency says the terms of that deal triggered the latest downgrade. Greek debt already had a “junk” grade rating from the agency.
Separately, the European Central Bank (ECB) said it was suspending the eligibility of Greek bonds as collateral for loans to commercial banks.
It said this would run until mid-March.
The ECB explained that by the middle of next month it would start to accept the bonds again, because a programme for eurozone nations to provide supplementary collateral to insure the ECB against losses is due to come into effect.
Banks and other financial firms are being asked by Greece’s government to take a 53.5% loss on their Greek sovereign bonds.
Austerity measures have prompted mass demonstrations in Greece
The plan was agreed by the Greek parliament last week, and, if backed by Greece’s creditors, it would wipe out 107 billion Euros ($142 billion) of the country’s debt.
S&P said that when the debt exchange was complete it would assess Greece again and possibly raise its rating.
The Greek government said S&P’s move had been expected and added it would not hurt the banking industry.
“This rating does not have any impact on the Greek banking system since any likely effect on liquidity has already been dealt with by the Bank of Greece,” the finance ministry said in a statement.
Last week, rival credit rating agency Fitch also downgraded Greece’s debt.