Aug. 2, 2011, 10:18 a.m. EDT
Italy, Spain feel heat as debt crisis is reignited
Global growth worries put pressure on officials as turmoil increases
By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — There will be no quiet August at the beach for European leaders or investors.
A combination of growth worries and risk aversion sent Italian and Spanish bond yields soaring to euro-era highs on Tuesday, freshly reigniting fears the euro-zone’s debt crisis could engulf two of the major economies in Europe.
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At the root of this latest pressure on the bond markets may be the accord struck by euro-zone leaders last month to rescue Greece and revamp the region’s bailout mechanism. In the wake of that pact, traders have been unconvinced that authorities have the firepower to stop speculative runs.
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But while those nations are relatively small, Italy is the region’s third-largest economy and Spain is the fourth largest.
Changes to the region’s 440 billion euro European Financial Stability Facility will help ease the debt burden for Greece, Ireland and Portugal. But critics complain that alterations designed to allow the fund to intervene in bond markets to protect the likes of Italy and other troubled sovereigns weren’t backed up with more financial firepower.
On top of that, planned changes won’t be implemented for months.
A decision last week by Zapatero to call early elections has added to concerns about Spain’s ability to stick to its near-term fiscal goals, analysts said. Zapatero, who is not seeking re-elections, set the poll date for November, four months early.
Underlying the pressure, economists said, are concerns about slowing growth across the entire euro zone and the global economy.
Full story: http://www.marketwatch.com/story/italy-spain-feel-heat-as-debt-crisis-is-reignited-2011-08-02?pagenumber=2
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