The eurozone sovereign debt crisis has “suddenly turned a whole lot scarier”, said the FT. Early this week the yield on both Spanish and Italian ten-year debt spiked to 6%. That was the highest since 1999, as fears grew that Italy would be unable to get to grips with its huge debt pile. As the crisis spread beyond the periphery, the euro slid to another record low against the Swiss franc. The impending release of the eurozone’s latest banking stress tests also caused concern. There were rumours that six Spanish banks had failed.
A relatively successful sale of 12-month debt by the Italian Treasury, and the Italian government’s promise to push its austerity package through parliament quickly, tempered jitters on Tuesday. But credit ratings agency Moody’s then downgraded Ireland’s debt to junk status, saying it was likely to need a second bail-out. European finance ministers, meanwhile, made scant progress on Greece’s second rescue package at a meeting this week.
What the commentators said
“The battle plan” for the eurozone “has been to ringfence the smaller peripheral countries to avoid contagion to Spain – and its further spread from there”, said the FT. But events have “blown that… plan out of the water”. There is a sense that the markets are moving so fast the authorities can’t keep up, added Buttonwood on Economist.com.
That’s hardly surprising when getting the eurozone to make major changes is like a centipede hurdling, as Citigroup’s Willem Buiter put it. This week, for the first time, eurozone finance ministers signalled that they are ready to consider a Greek default. There was also talk of lowering the interest rates on the rescue loan for the peripheral states and helping them buy back their bonds in the secondary market, which would lower their debt load.
But there were no specifics. All we got from the meeting were “vague” ideas on an “undefined timetable”, said Economist.com’s Charlemagne. Letting matters “drag out” will “guarantee more contagion”. The market’s basic worry, said David Prosser in The Independent, is that if the eurozone cannot agree on a “convincing solution” for Greece (“comparative small-fry” in this drama), then “why should anyone believe it will not allow ‘too-big-to-fail’ Italy to do exactly that”? Europe is “fiddling while Rome burns”.