Euro zone crisis worsens as risks climb
By Andrei Khalip and Noah Barkin |
December 1, 2010, Wednesday
|
Print Edition
Print Edition
THE euro zone's debt crisis deepened yesterday as investors pushed the risk premiums on Spanish and Italian bonds to euro lifetime highs and Portugal warned of the risks facing its banks.
The euro dipped to its lowest level against the dollar in over two months, immune to new attempts by European policymakers to calm markets hell-bent on testing the European Union's determination to shield its financially weak members.
Two days after the bloc approved an 85 billion euro (US$110 billion) emergency aid package for Ireland, worries about Portugal and Spain persisted and the borrowing costs of countries like Italy, Belgium and France shot higher.
Markets are already discounting an eventual rescue of Portugal although, as Ireland did, it says it requires no outside help.
Should its much larger neighbor Spain require assistance, it would sorely test the resources of the bloc and raise questions about the integrity of the 12-year old single currency area.
"Markets are very nervous and may even target situations that do not warrant such excessive worrying, hence no one can really predict," Tomasso Padoa-Schioppa, a former Italian finance minister and ECB member, told a Greek newspaper when asked whether the EU would be able to save Spain.
"In my opinion, conditions in Spain are such that there is absolutely no reason to expect that it will be targeted. I repeat, however, that markets are in a very nervous mood."
Italy, which most analysts see as at lesser risk, is now being referred to as "too big to fail" and "too big to bail."
The euro dipped below US$1.30 for the first time since mid-September and the yield spreads of 10-year Spanish, Italian and Belgian bonds over German benchmarks spiked to their highest levels since the birth of the euro in January 1999.
The cost of insuring most euro zone government debt against default rose and European banking shares fell over 1 percent in nervous trading early yesterday.
Portugal's central bank warned overnight its country's banks faced an "intolerable risk" if the government failed to consolidate public finances.
The euro dipped to its lowest level against the dollar in over two months, immune to new attempts by European policymakers to calm markets hell-bent on testing the European Union's determination to shield its financially weak members.
Two days after the bloc approved an 85 billion euro (US$110 billion) emergency aid package for Ireland, worries about Portugal and Spain persisted and the borrowing costs of countries like Italy, Belgium and France shot higher.
Markets are already discounting an eventual rescue of Portugal although, as Ireland did, it says it requires no outside help.
Should its much larger neighbor Spain require assistance, it would sorely test the resources of the bloc and raise questions about the integrity of the 12-year old single currency area.
"Markets are very nervous and may even target situations that do not warrant such excessive worrying, hence no one can really predict," Tomasso Padoa-Schioppa, a former Italian finance minister and ECB member, told a Greek newspaper when asked whether the EU would be able to save Spain.
"In my opinion, conditions in Spain are such that there is absolutely no reason to expect that it will be targeted. I repeat, however, that markets are in a very nervous mood."
Italy, which most analysts see as at lesser risk, is now being referred to as "too big to fail" and "too big to bail."
The euro dipped below US$1.30 for the first time since mid-September and the yield spreads of 10-year Spanish, Italian and Belgian bonds over German benchmarks spiked to their highest levels since the birth of the euro in January 1999.
The cost of insuring most euro zone government debt against default rose and European banking shares fell over 1 percent in nervous trading early yesterday.
Portugal's central bank warned overnight its country's banks faced an "intolerable risk" if the government failed to consolidate public finances.
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