France's AAA rating shaky as euro crisis spreads

The debt crisis in the eurozone is once again in danger of spiralling out of control after government bond yields in Portugal hit a post-European monetary union high and contagion spread to Spain and Belgium.

The European Central Bank has been buying Greek, Irish and Portuguese bonds in an attempt to drive yields down, but its emergency purchasing policy has yet to expand to include a fresh set of countries facing difficulties. 

Belgium has been left out in the cold by the bank as its escalating constitutional crisis pushes yields on its 10-year bonds to a post-euro record of 4.27 per cent. 

The country has been without a government since Flemish separatist party the N-VA won the most votes in elections seven months ago.

Yields in Spain have also threatened to hit a post-EMU high at 5.58 per cent amid fears that Madrid will have difficulties finding buyers at a crucial debt auction on Thursday. 

Spain can count on assurances from China that it will stand behind Iberian debt, but Antonio Pacual Garcia of Barclays Capital said Chinese promises "may help at the margin" but will do little to change the ugly debt dynamics of the EMU periphery.

Chief economist at Blue Gold Capital and former IMF official, Stephen Jen, said that the bailouts – intended to "save the euro" – are causing the crisis to spread by contaminating stronger states rather than separating the balance sheets of good from bad, as would be normal in a debt clean-up operation.

The threat is that the contagion will infect Europe's core and harm the AAA ratings of France and Germany among others. If another €250bn is added to the EU's bail-out fund then "one or more" of the AAA states could be downgraded, "most likely" France.

Read a full report at the Daily Telegraph. ·