City fears of second Great Depression – papers

Leading City experts have started raising the prospect of "Great Depression II" amid worries the European economic crisis could trigger a deeper bout of chaos.

MARKETS on both sides of the Atlantic dipped to fresh lows as fears surrounding the fate of the euro project transmuted into worries about the wider global economic system, reports The Telegraph.

Bill Gross of bond fund Pimco said that hedge funds were starting to liquidate their positions in a bid to preserve their capital - a worrying "mini relapse" towards 2008 territory.

Andrew Roberts, head of European rates strategy at RBS, says "Great Depression II" could now be approaching, adding: "It now has potential to speed toward its conclusion; a European $1trn package which does little and political panic tells you we are about to reach the end of the road. The world should be discussing deflation, not inflation."

The FTSE 100 flirted briefly with the 5,000 point mark, eventually finishing the day down 84.95, or 1.7%, at 5073.13, while the French CAC 40 index was 2.3% lower and Germany's Dax dropped 2%. The S&P 500 and the Dow Jones index both suffered their sharpest one-day falls in more than a year. The S&P fell 3.9% to 1071.59, while the Dow closed 3.6% lower at 10,068.01. Read more

GERMAN action on the euro crisis could trigger an EU referendum in Britain, reports the Guardian, with demand for new single currency rules raising the possibility of the Lisbon Treaty being negotiated.

The German chancellor, Angela Merkel, said governments were failing to meet their pledges to strengthen their policing of the financial markets.

Following Greece's debt emergency and with the euro in the throes of its worst crisis of confidence, Berlin tabled a nine-point plan rewriting the euro regime to include legally enshrined budget deficit ceilings in all 16 member countries.

The German demands, in a finance ministry paper obtained by the Guardian, could require the EU's Lisbon Treaty to be renegotiated, presenting David Cameron with a dilemma over whether this would trigger an EU referendum in Britain. Read more

STATE controlled Royal Bank of Scotland is defying calls for restraint on pay by awarding massive salary rises to thousands of investment bankers, reports the Daily Mail.

Star traders will see their base salaries doubled, with others given smaller rises, typically between 20%-40%, sources say.

The bailed out bank, which is 83% owned by the taxpayer, is hiking the pay in an attempt to circumvent restrictions on cash bonuses. It is in the process of finalising the increases, but many bankers have already been told what to expect. Read more

PRIME MINISTER David Cameron has defended the government's decision to keep Britain out of the euro, during a meeting with the French President, reports the BBC.

He met Nicolas Sarkozy while on his first foreign trip since taking office.

Meanwhile EU leaders stepped up efforts to restore the credibility of the euro amid ongoing problems in the eurozone.

Mr Cameron said Britain needed the eurozone to be a success but added: "We were right not to join the euro and... right to stay out of the euro."

The Conservative and Liberal Democrat coalition government has said the UK will not join, or prepare to join, the euro during this parliament.

Mr Cameron told a news conference in Paris that pledge was "important". Read more

UK retail sales grew modestly in April, exceeding expectations, but economists gave warning that the outlook for consumer spending was weak.

The volume of sales rose by 0.3% compared with March, driven largely by a sharp rise in clothing sales, reports The Telegraph.

Compared with the same month last year, retail sales were 1.8% higher, the Office for National Statistics (ONS) said. Food sales were 1.7% lower compared with a year earlier, while non-food sales were 5.9% higher.

Retail sales are expected to be weak during the remainder of the year as high unemployment, subdued wage growth and the prospect of higher taxes weigh on consumer spending. Read more