Around The Horn In Europe - The Guardian liveblog - PSI update , Service Sector Data In Europe and China Hard Landing Concerns....

12.18pm: The slow, remorseless exodus of funds from Greek bank account continues, finance minister Evangelos Venizelos revealed today.

Speaking on Greek television, Venizelos said bank deposits in Greece have fallen by €70 billion since the start of the crisis in 2009. Only €16bn of the funds was sent abroad, with most of it ending up in the UK, apparently.

Most of the money has either been hoarded away (on fears of a bank collapse) or simply spent by families as the economic downturn bites.

Venizelos said the capital outflow had damaged the Greek economy:

This money, if it existed in the banks, would allow for loans to be made to businesses, for the economy to move, for unemployment to be tackled.

But it's hardly surprising that Greeks have been forced to eat into their savings (as the country enters its fifth year of recession).

Data released last Friday showed that Greek businesss and household deposits dropped by another 3%, or €5.3bn, in January to €168.96bn. Compare that with Venizelos's figures, and you see that over 40% of bank deposits have evaporated in three years.

11.55am: The decision by German investor group DSW to recomment rejecting the Greek debt swap deal (see 11.20am) underlines how murky the Private Sector Involvement deal remains, with little more than three days to go.

That's the view of Louise Cooper of BGC Partners, who warns this morning that the PSI situation is "very opaque", saying:

How large and influential the DSW group is, is debatable, but it shows that this is not a done deal and it arouses much criticism.

Cooper confirms that the key target in the PSI deal is a 66% take-up, allowing Greece to enforce its Collective Action Clauses. That would trigger credit default swaps, which might allow the CDS market to "regain some of its credibility".

She also warns that Greece's long-term prospects remain dark,:

Frankly anyone who thinks a 120% debt to GDP ratio is either achievable or sustainable in 2020 is overly optimistic. At least for the next few years, this is a never-ending-story (or tragedy).

11.20am: The organisation that represents German investors has recommended that holders of Greek debt should reject Greece's debt swap real .

Deutsche Schutzvereinigung für Wertpapierbesitz just released a statement advising private creditors holding short-term debt that they should not swap their existing securities for new long-term Greek bonds.

DSW argued that investors would be better advised to sit tight. Why? Becuase if the overall take-up of the offer comes in above 90%, their debt would probably be paid off at face value, meaning they avoid the haircut.

If, though, the PSI take-up is between 75% and 90% then a mandatory exchange will be triggered (so investors would be no worse off than if they'd taken part voluntarily).

Here's the key parts of the DSW statement (which you can see in full, in Germanm here):

Bondholders are to take losses on at least 53.5% of their holdings. But because the new bonds run for 30 years, losses will be "significantly greater" for those whose bonds mature in 2012, said Marc Tüngler, head of DSW.

"We advise therefore investors whose bonds have short maturities in particular not to accept the offer."

Should the Greek deal get 70% to 90% acceptances, there is likely to be a compulsory swap. Creditors who have previously rejected it will be treated as though they had accepted it and have therefore nothing to lose.

Only creditors whose holdings have bonds with longer maturities, who want to reduce risks, should consider taking part. (translation by my colleague Julia Kollewe).

DSW's analysis doesn't include the possibility that fewer than 75% of bond-holders take part. As mentioned earlier (8.55am), a take-up rate below 66% would mean Greece could not force losses on investors.

10.50am: Over in Greece, finance minister Evangelos Venizelos is expected to meet with prime minister Lucas Papademos this lunchtime (so quite soon).

It's likely that the progress of Greece's debt swap talks will top the agenda. Greece has until Thursday night (March 8th) to agree the deal. The European Union won't allow that to slip - in fact, a teleconference call has been agreed for the next day.

9.50am: This graph from Markit shows how France and Germany's services sectors have outperformed Spain and Italy over the last few years.

Source: Markit

Markit released the graph alongside this morning's data showing that the eurozone's service sector shrank last quarter (see 9.08am).

The graph shows how Spain's service sector has barely broken into growth (above the 50 point mark) in the last three years, while France and Germany both posted growth most months, even at times when their rate of expansion fell back.

Here's a table of the highlights, and lowlights, of today's data:

Ireland: 53.3 - 12-month high
Germany: 52.8 - 2-month low
France: 50.0 - 3-month low
Italy: 44.1 - 4-month low
Spain: 41.9 - 3-month low

9.08am: The eurozone's dominant services sector contracted last month, in a blow to hopes that the eurozone will avoid recession.

Markit's PMI survey (based on interviews with purchasing managers across Europe) fell to 48.8, down from 50.4 in January. A number below 50 means the eurozone service sector contracted.

The data shows sharp differences between countries, with the stronger members of the eurozone performing better.

Germany, France, and Ireland all posted service sector growth, although France did slip back towards stagnation. And Italy's services sector slumped, with activity coming in at just 44.1.

8.55am: The euro is also losing ground this morning, dropping through the $1.32 mark against the US dollar.

That follows reports in several newspapers this morning that Greece's debt swap deal, called the Private Sector Involvement has got off to a slow start (reminder: this is the part of the aid package in which Greece's lenders agree to take a 53.3% 'haircut' on the value of their existing bonds).

If PSI take-up falls below 90% then the mathematics of the swap would not work, as Greece's debt pile would be higher than the IMF demands. That means that the Collective Action Clauses inserted into Greek bonds would be triggered.

So should we be panicking that the CACs will be deployed? I'm not sure we should, yet, – it's been clear for weeks that some creditors are very reluctant to take part in the PSI (hoping to be paid out in full). If CACs are used, then the pretence that this is a voluntary restructuring would be shattered, and presumably Greek credit default swaps would be triggered. That, arguably, is exactly how the system should work.

But this morning's Financial Times puts its finger on the big risk -- if PSI take-up falls below 66%, then the CACs can't be triggered. That's the new nightmare scenario.

Charles Dallara of the Institute of International Finance (who represents the creditors) is urging calm this morning, saying:

It's the largest debt restructuring in history. It's also the most complex.

I understand it takes a little while to get their hands around it.

8.32am: China's decision to cut its growth forecast for 2012 to 7.5% send European stock markets falling in early trading. No major drama yet, though -- the FTSE 100 is down 16 points at 5895.

The Chinese authorities fear that the European crisis and a fragile US recovery will hurt its exports.

Wen Jiabao, right, speaking earlier today. Photograph: Ng Han Guan/AP

As Tania Branigan reports from Beijing, premier Wen Jiabao claimed that a lower GDP target would aid the task of reshaping the country's economy:

Officials had already hinted at a reduction in the growth target, a largely symbolic figure that has been outpaced by actual growth rates each year. China's economy grew by 9.2% last year, down from 10.3% in 2010.


"We aim to promote steady and robust economic development, keep prices stable and guard against financial risks by keeping the total money and credit supply at an appropriate level, and taking a cautious and flexible approach," Wen said.

The premier said his priority was boosting consumer demand and promised to improve policies encouraging consumption. "We will vigorously adjust income distribution, increase the incomes of low- and middle-income groups and enhance people's ability to consume," he said.

8.18am: New data released by the European Central Bank shows that European financial institutions loaned €820.8bn to the ECB on Friday night.

That's another all-time high, up from €777bn on Thursday evening.

What this shows is that the banks who borrowed €529bn through the ECB's cheap loan offer last week are lending much of the funds straight back in overnight deposits. The situation won't change for some time, either. As Sony Kapoor of think tank Re-define pointed out this morning, the ECB has now handed banks around €1 trillion in low-cost loans in recent months:

So, despite all the interest in the ECB's Long Term Refinancing Operation last Wednesday, it will take some time for that liquidity injection to work its way through the system. The key issue for the 'real economy', though, is whether it has any impact on commercial lending, or is just used to mop up high-yielding government debt.