German ‘Nein’ leaves Italy and Spain in turmoil

Tuesday, July 12, 2011
By Paul Martin

Italian and Spanish bond yields soared to post-EMU highs in a fresh day of credit turmoil after Germany blocked any meaningful measures to defuse the crisis.

By Ambrose Evans-Pritchard
Telegraph.co.uk

Chancellor Angela Merkel called for more “frugality” in Italy, sticking to her script that Rome can solve its woes with an austerity budget. Her finance minister Wolfgang Schäuble said any boost to the EU’s €500bn (£440bn) bail-out machinery was “out of the question”.
Mr Schäuble denied reports that Berlin was ready to empower the fund to purchase Spanish and Italian bonds pre-emptively on the open market, a move seen by experts as vital to halt dangerous contagion to the larger economies.

The market’s verdict on EU foot-dragging was instant and brutal. Yields on 10-year Spanish bonds smashed through the 6pc barrier for the first time since 1997, made worse by warnings from the Castilla-La Mancha region that its deficit had become “extremely serious”.
Italian yields jumped 44 points 5.7pc, a level that starts to threaten the sustainability of the country’s finances. Markit’s iTraxx SovX Western Europe, Europe’s sovereign stress gauge, saw the biggest one-day rise ever. “Contagion was the word on everybody’s lips,” said Gavan Nolan, Markit’s credit chief.
EU leaders seem unable to keep pace with the fast-moving events. Eurogroup finance ministers focused yesterday on details of “burden-sharing” for banks that lent to Greece, no longer the most urgent matter. A summit of top EU officials ended with no hint of how the crisis could be contained.

The Rest…HERE

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