Eurozone Crisis: Spanish Debt Fears Cut Short Markets’ Greek Relief !
- Emphasis mine:
Eurozone crisis: Spanish debt fears cut short markets’ Greek relief!
by Larry Elliott, economics editor, guardian.co.uk
Interest rates on Spain’s debt rise sharply on expectations it will become fourth EU country to require full-scale bailout
A rally in financial markets at the result of Greece’s election lasted barely an hour amid growing fears that Europe’s worsening debt crisis was about to engulf Spain. Interest rates on Spain’s debt rose sharply to hit 7.26% at one point as relief at the possibility of a pro-austerity government being formed in Athens quickly faded.
Dealers quickly had second thoughts about the impact of the second Greek poll in two months, selling shares and driving up bond yields in anticipation that Spain will become the fourth eurozone country to require a full-scale bailout from the European Union and the International Monetary Fund.
Share prices in Spain and Italy – the two countries seen as most vulnerable to contagion from Greece – fell 3%, while an early rise in the City fizzled out to leave the FTSE 100 just 12 points higher at 5491. Interest rates on Spain’s borrowing are at levels that forced Greece, Ireland and Portugal to seek outside financial assistance, and in a day of nervous trading, risk-averse investors sought out the traditional safe havens of the Swiss franc and German bonds.
Stephen Lewis, of Monument Securities, said: “The Greek election result averts the most immediately alarming scenarios for the eurozone but makes no fundamental change in the medium term outlook.” Markets have become increasingly concerned in recent weeks that the austerity programmes in the eurozone are causing a vicious circle of recession and higher levels of debt. One analyst said Greece’s problems were so intractable that a new pro-austerity government was unlikely to remain in office until the end of the year.
Graham Turner, of GFC Economics, said: “By common consent, there will be another election within six months, when Syriza is widely expected to take control. However, whoever governs Greece will be faced with a similar compelling logic. A second debt restructuring will be required to keep Greece within the single currency.”
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