Here’s the situation right now, by my colleagues Jill Treanor and Stephanie Kirchgaessner (out in Rome):

The Italian government is braced to bail out the world’s oldest bank, Monte dei Paschi di Siena (MPS), which is expected to reveal it has failed to win support from private investors for a €5bn (£4.2bn) rescue package.

The board of Italy’s third largest bank was meeting on Thursday after it failed to secure an anchor investor – thought to be the Qatar sovereign wealth fund – to support its fundraising effort.

Shares in the bank were volatile, lifting off record lows but then falling back in confusion about the next steps. The shares – down 85% this year – slumped by 7.5%. MPS is under instruction from the European Central Bank to bolster its finances after it was the weakest of 51 European banks subjected to stress tests.

The inability to convince Qatar to put in up to €1bn is expected to lead the bank’s board to concede it would not be able to secure a solution to its capital gap without the Italian government. This means Italy would have to impose losses on bondholders before it could stump up cash because of new EU rules intended to stop taxpayers having to pick up the bill for bank losses.

However, about €2bn of the bonds are held by private investors and there are expectations that an arrangement would be put in place to limit their losses.

The Italian cabinet is expected to convene on Thursday to discuss its options for protecting retail investors and to try to limit its eventual stake in the bank to below 50%.

The bailout is not just a financial issue. It is also expected to have political consequences for Italy’s controlling Democratic party and Matteo Renzi, the former prime minister who stepped down from office earlier this month after he was roundly defeated in the 4 December referendum. Paolo Gentiloni has taken over as prime minister for now, but Renzi is expected to run for election again as early as next year.

Wolfango Piccoli, an analyst with Teneo Intelligence, said a government rescue might not be immediately damaging politically, in large part because public attention will be diverted from the issue during the Christmas period. But the issue could become “politically toxic” later, once it becomes clear how many of the bank’s junior bondholders are eventually compensated for their losses, and how long it takes for them to be paid....

Piccoli said:

“In terms of the junior bondholders, let’s see what happens. it will eventually be decided by Brussels,”

Once MPS is saved, a number of other banks could also require government support, keeping the issue in the news for the foreseeable future.

“This will drag on for some time. If we have elections in May or June, it will be used then [against Renzi’s Democratic party], and there is no way to deflect that.”

Here’s their full story:

Shares on Monte dei Paschi (MPS) have slumped to a new all-time low tonight, as investors anticipate a state bailout for the bank.

After another volatile day, they closed down 7.5% at €15.08 - around 99.85% lower than in early 2007.

MPS’s apparent failure to raise €5bn in new capital means investors now expect the Italian government to step in; a move which could end up with it owning a large stake in the bank.

Paresh Davdra, CEO and Co-Founder of RationalFX, says:

The failure of MPS to secure €5bn from an anchor investor will have far ranging implications, as the Italian government prepares for a €20bn bailout.

With the Italian banking sector in an incredibly fragile state and the ongoing Deutsche Bank situation creating uncertainty in Europe’s banking system as a whole, an unsuccessful rescue effort could destabilise the Eurozone.

So, what happens next with Monte dei Paschi?

We’re basically waiting for the bank’s board to conclude their meeting, and submit their request for state aid (having failed to raise the necessary €5bn from private investors to strengthen their balance sheet).

Then the ball is in new prime minister Paolo Gentiloni’s court; will his cabinet meet this evening, or push the decision back to Friday?

Reuters reckons it could go either way. Here’s their latest report:

Italy’s government will meet late Thursday or early Friday before European markets open to discuss an emergency decree to bail out troubled bank Monte dei Paschi di Siena, sources familiar with the matter told Reuters.

The salvage of Monte dei Paschi would be part of a €20bn safety net that Prime Minister Paolo Gentiloni plans to set up beneath the banking industry.

Gentiloni said on Thursday the cabinet would meet on Friday to discuss measures to help Italy’s under-developed southern regions. He did not mention the banking decree, leaving open the door on a late-night meeting on Thursday.

Breaking news from America: the world’s largest economy grew even faster than previously thought in the third quarter of 2016.

US GDP expanded by an annual rate of 3.5% in the July-to-September period, up from a previous estimate of 3.2%.

That’s the equivalent of a quarterly growth rate of around 0.85% -- much faster than Britain’s 0.5% growth in the same period.

This shows that America’s economy is growing at the fastest pace in two years, driven by a 3% rise in consumer spending, a 10% jump in exports, and a rise in companies restocking their inventories:

There’s a flurry of other economic data flashing across my terminal too, including the news that

• New orders for US-made capital goods (heavy-duty machinery, electronics) jumped by 0.9% last month (excluding aircraft sales).
  
• The number of new claims for unemployment benefit hit a six-month high of 275,000 last week.
  

The clocks in Siena have chimed two o’clock, which means that Monte dei Paschi’s attempt to raise €5bn from private investors has officially ended.

Unless something remarkable happened in the last few hours, MPS will have failed to hit its target.

As we flagged up this morning, MPS had only managed to raise €2bn, once the Qatar sovereign wealth fund declined to back the plan last night.

One insider tells us that the Monte dei Paschi board will now meet to plan their next move. They could decide to ask Italy’s government for assistance tonight, to help the bank reach its €5bn target.

Any rescue plan could also force losses on investors who hold MPS bonds; under European banking rules, these bondholders must be ‘bailed in’, before the state can help.

But the Italian government will be keen to avoid penalising the retail investors (individuals, families, small businesses...) who hold debt issued by the world’s oldest bank..... So they could look to find a way of compensating them (one theory is that anyone holding less than €100,000 of bonds is protected, as with retail savings accounts).

Electric carmaker Tesla has become the latest firm to raise the cost of its products in the UK, in response to the pound’s decline this year.

The company told some UK showrooms that prices will go up at the start of next month.

In an email, Tesla said:

We have just received some information that we need to share with you – due to currency fluctuations we will be increasing our UK prices for custom orders by 5% on 1 January 2017.”

“Prices on showroom and pre-owned cars will remain fixed at current prices.”

More here:

Toby Nangle, top multi-asset manager at Columbia Threadneedle, isn’t convinced that the Treasury Committee’s new inquiry into the Bank of England will crack the mysteries of monetary policy.

After all, the BoE does devote plenty of time to assessing whether its measures are working.

So MPs (or their staffers) may find themselves wading through long, competing theories about how interest rates and quantitative easing works.

Toby tweets:

But...economist Shaun Richards is encouraged that MPs have launched an inquiry into the BoE’s work:

Newsflash from London: A group of influential MPs have just launched an inquiry into the effectiveness of Britain’s monetary policy since the financial crisis struck.

The Treasury committee will investigate whether the Bank of England was right to slash interest rates to record lows, and buy up hundreds of billions of government bonds with new money.

They will examine whether this policy has actually worked, what impact it has had on savers, house prices and struggling companies, and whether policymakers are now out of ammunition to fight the next crisis.

The move follows growing criticism of the Bank’s actions in the crisis, most notably from prime minister Theresa May. The BoE, though, insists that it has acted sensibly to protect the economy and preserve jobs.

Committee chairman Andrew Tyrie explains why MPs are now taking action:

Interest rates are stuck near zero, the Bank of England has used increasingly unconventional forms of quantitative easing, and inflation has been below the two per cent target for three years.

“The efficacy of monetary policy or otherwise, its unintended consequences, and its prospects, need careful examination.

“The Treasury Committee will continue to act as a safeguard on the operational independence of the Bank. The Treasury indemnity, which underpins parts of the Bank’s monetary policy, could all too easily encourage the Treasury, or politicians, to put undue pressure on the Bank. The Committee will examine the risks of that, too.”

Here are the terms of reference for the inquiry:

The effectiveness of monetary policy in meeting the inflation target:

• The effectiveness of holding Bank rate near zero and whether extremely low rates can encourage more, rather than less, saving
  
• The effectiveness of quantitative easing and whether it has met with diminishing returns
  
• The scope for further expansion of “qualitative easing” (e.g. corporate bond purchases)
  
• Whether forward guidance effectively binds the Bank to a policy course, and the desirability of doing so
  

The unintended consequences of monetary policy

• The impact on asset-price inflation, the housing market and financial stability
  
• The implications for the long-term sustainability of pensions and savings income
  
• The distributional impact
  
• The impact on competition, “zombie companies” and productivity
  
• The effects on the structure of relative prices in capital and commodity markets and the consequences for capital allocation, productivity and the trade cycle
  
• The implications of a large balance sheet and the Treasury indemnity for Bank accountability and its relationship with the government and other agencies
  
• The use of macro-prudential, fiscal and other policy to counterbalance any unintended consequences of monetary policy
  

The prospects for monetary policy

• The drivers behind and prospects for low real interest rates in the UK and globally
  
• What is the significance for monetary policy of rises in bond yields since the US election?
  
• The impact and trade-offs of tightening monetary policy in the near-term
  
• Whether monetary policy is currently out of ammunition for the next crisis
  
• Options for raising the “natural rate” of interest (e.g. fiscal policy, promoting investment)
  

Italian newspaper Il Sole 24 is reporting that the rescue of Monte Dei Paschi might take two or three months.

The paper says that the details haven’t been worked out yet, but that MPS would initially be able to tap state guarantees to bolster its liquidity.

That would help MPS avoid running out of cash, now that Qatar has declined to back its €5bn cash call.

A long-term recapitalisation plan would take longer; and involve MPS’s management presenting a new business plan.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Monte dei Paschi di Siena has been through a lot since it was founded back in 1472, twenty years before Columbus discovered America.

And the world’s oldest bank finds itself in the undignified position of needing a bailout this morning, after efforts to persuade private investors to provide desperately needed fresh capital floundered.

Monte dei Paschi di Siena admitted last night that Qatar’s sovereign wealth fund had not been persuaded to become the “anchor investor” to underpin its €5bn cash call.

So a saga that has been dragging on for months could finally be resolved today, when the cash call closes at lunchtime today.

Without private sector capital, MPS is now likely to miss an end of year deadline imposed by the European Central Bank to raise fresh funds. So the Italian government is now under serious time pressure to step in and put in fresh capital itself.

As we wrote last night, MPS is running out of time and options.

Shares in the bank, Italy’s third largest, gyrated wildly in Wednesday’s trading session, plunging 18% to record lows before closing 12% lower amid rumours that the fund-raising effort would fail.

“The idea that Qatar could be an anchor investor has vanished and without an anchor investor there is no demand from anyone else,” one source told Reuters.

In the last few minutes, the bank reported that it had only raised €2bn in new capital through the debt-for-equity swap, far short of the €5bn target.

Yesterday, Italy’s government prepared for a rescue bid by approving a €20bn fund for bank recapitalisation.

Ministers have also insisted that there will be a “minimised or non-existent” impact on savers. But shareholders, and those who hold MPS’s junior, and riskier, bonds could suffer losses.

Also coming up today

The Dow Jones industrial average will have another tilt at smashing through the 20,000 point mark, after faltering and falling back from record highs yesterday.

We get a flurry of US economic data, including new personal consumption and durable goods orders at 1.30pm GMT, plus the latest weekly jobless report -- and a new estimate of American growth in the last quarter.

And rumours continue to swirl that Deutsche Bank might be close to a settlement with the Department of Justice, over misconduct before the 2008 financial crisis.