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Bond skepticism hits Europe debt
Source: Agencies |
November 18, 2011, Friday
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SPAIN and France struggled with government bond auctions yesterday, throwing into sharp relief the threat of larger eurozone economies succumbing to the debt crisis that began in Greece and is now affecting Italy.
Madrid was forced to pay the highest borrowing costs since 1997 at a sale of 10-year bonds, with yields 1.5 percentage points above the average paid at similar tenders this year. The euro fell on the foreign exchanges in response.
Paris fared a little better, but had to pay markedly more to shift nearly 7 billion euros (US$9.4 billion) of government paper. Fears that the eurozone's second-largest economy is getting sucked into the maelstrom have taken the two-year debt crisis to a new level.
Marc Ostwald, a strategist at Monument Securities, said: "The eurozone has got to deliver something which is going to calm markets and at the moment markets feel like they are being given no comfort whatsoever."
With Italy's borrowing costs now at untenable levels, Prime Minister Mario Monti will have to work fast to calm the markets, given Italy needs to refinance some 200 billion euros of bonds by the end of April.
But no amount of austerity in Greece, Italy, Spain and France is likely to convince the markets without some dramatic action, probably involving the European Central Bank. Many believe the only way to stem the contagion is for the ECB to buy large quantities of bonds.
France and Germany have stepped up their war of words over whether the ECB should intervene more forcefully to halt the eurozone's debt crisis after modest bond purchases failed to calm markets.
Facing rising borrowing costs as its triple-A credit rating comes under threat, France has urged stronger ECB action, but Berlin continues to resist, saying European Union rules prohibit such action.
"If politicians think the ECB can solve the euro crisis, they are mistaken," German Chancellor Angela Merkel said, adding that even if the ECB assumed a role as lender of last resort, it would not solve the crisis.
Investors and eurozone officials hope that if Merkel and others find themselves staring into the abyss, the unthinkable will rapidly become thinkable.
ECB policymakers continue to reject international calls to intervene decisively, stressing that it is up to governments to resolve the debt crisis. The bank's policy of buying Italian and Spanish bonds in limited amounts is barely holding the line.
Rating agency Fitch warned it might lower its "stable" rating outlook for US banks because of contagion from problems in troubled European markets.
Madrid was forced to pay the highest borrowing costs since 1997 at a sale of 10-year bonds, with yields 1.5 percentage points above the average paid at similar tenders this year. The euro fell on the foreign exchanges in response.
Paris fared a little better, but had to pay markedly more to shift nearly 7 billion euros (US$9.4 billion) of government paper. Fears that the eurozone's second-largest economy is getting sucked into the maelstrom have taken the two-year debt crisis to a new level.
Marc Ostwald, a strategist at Monument Securities, said: "The eurozone has got to deliver something which is going to calm markets and at the moment markets feel like they are being given no comfort whatsoever."
With Italy's borrowing costs now at untenable levels, Prime Minister Mario Monti will have to work fast to calm the markets, given Italy needs to refinance some 200 billion euros of bonds by the end of April.
But no amount of austerity in Greece, Italy, Spain and France is likely to convince the markets without some dramatic action, probably involving the European Central Bank. Many believe the only way to stem the contagion is for the ECB to buy large quantities of bonds.
France and Germany have stepped up their war of words over whether the ECB should intervene more forcefully to halt the eurozone's debt crisis after modest bond purchases failed to calm markets.
Facing rising borrowing costs as its triple-A credit rating comes under threat, France has urged stronger ECB action, but Berlin continues to resist, saying European Union rules prohibit such action.
"If politicians think the ECB can solve the euro crisis, they are mistaken," German Chancellor Angela Merkel said, adding that even if the ECB assumed a role as lender of last resort, it would not solve the crisis.
Investors and eurozone officials hope that if Merkel and others find themselves staring into the abyss, the unthinkable will rapidly become thinkable.
ECB policymakers continue to reject international calls to intervene decisively, stressing that it is up to governments to resolve the debt crisis. The bank's policy of buying Italian and Spanish bonds in limited amounts is barely holding the line.
Rating agency Fitch warned it might lower its "stable" rating outlook for US banks because of contagion from problems in troubled European markets.
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