Spanish and Italian 10-year borrowing costs shot up to their highest levels this year, and European stock markets suffered their biggest one-day drop in three weeks. German 10-year bond yields fell to a record low, widening the premium Madrid pays to borrow compared to Berlin to a new euro-era high.
The chance of Greece falling out of the eurozone – previously seen as a cataclysmic event that many European policymakers had refused to discuss – has attracted renewed speculation following an election that resulted in strong gains for parties opposed to budget cuts imposed as a condition for Greece’s bailout. European leaders have created a €500 billion eurozone rescue system, the European Stability Mechanism, as a financial firewall. But many analysts and investors have questioned whether it is big enough to rescue the larger economies at risk, such as Spain and Italy.
Luis de Guindos, the Spanish finance minister, insisted the market turbulence was due to political uncertainty in Greece and not a verdict on his government’s efforts to shore up the banking sector, arguing Madrid had “done what we had to do”. “Spain has taken measures, implemented a very deep banking clean-up, to improve our fiscal situation”, Mr de Guindos said. “What we need now is the cooperation of the eurozone.”
However, Jean-Pierre Jouyet, the head of France’s financial markets regulator and adviser to incoming president François Hollande, warned that “there is a risk of contagion”. “If Greece left the euro, which is a hypothesis that today we cannot avoid, we have to look at the chain of consequences” for banks, he said.
Full article (FT subscription required)
© Financial Times
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article