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Contagion spreads to Italy after Ireland bailout
Business digest: But if Portugal and Spain have to be rescued, there won’t be any money for Italy
The cost of government borrowing for Italy has soared to a post-monetary union high - dashing hopes that the €85bn bailout of Ireland's economy would restore confidence in eurozone debt markets.
Previously, high bond yields were only an issue for the likes of Portugal and Spain, but the problem - which increases the cost of government borrowing - is spreading beyond these weaker economies to Italy, which is now paying 4.61 per cent on 10 year bonds.
Nick Matthews, a credit expert at RBS, said: "The crisis is intensifying and worsening. Bond purchases by the European Central Bank are the only anti-contagion weapon left. It needs to act much more aggressively."
Investors have been dumping the bonds of Mediterranean countries in a bid to reduce risk in the portfolios before the end of the year, which is increasing the cost of borrowing for these weak countries.
The yield on Spanish bonds touched 5.4 per cent, making a bailout ever more likely. If it and similarly stricken Portugal are forced, like Ireland and Greece, to take money from the EU's bailout fund, there will be no more money for Italy, whose €2 trillion public debt is the third largest in the world.
Read a full report at the Daily Telegraph. ·
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Well it looks like the Euro is on its way out. It was a stupid concept from day one, to combine strong and weak currencies and expect it to work. Countries with a weak currency will always remain so. The stronger currencies cannot afford to support them for ever. Or risk putting there own countries in trouble.