July 12, 2011
Markets in Europe are being hit hard by fears that the debt crisis will spread to Italy, which is regarded as too big to rescue. German media commentators say the time has come to stop the piecemeal bailout efforts and to make the member states share liability for their debt -- via euro bonds.
European markets and the euro are falling on worries that the euro crisis is about to engulf Italy and Spain, which analysts regard as too big to rescue. To make matters worse, the euro-zone finance ministers failed at their meeting on Monday to agree on a second bailout package for Greece.
They pledged longer bond maturities and a more flexible rescue fund to help Greece and other European Union debtors, but they set no deadline to act, merely saying new steps would be decided "shortly." They also declined to rule out the possibility of a selective default by Greece, even though the European Central Bank is opposed to such a move.
A decision has been postponed due to continuing disagreement over the terms of involving private-sector investors in a second bailout package for Greece.
The euro fell below $1.39 on Tuesday, down from €1.42 at the end of last week. and the yield on the Italian 10-year bond rose to 5.9 percent, above the 5.7 percent pain threshold identified by some market participants as putting Italy's public finances under heightened pressure. The yield on 10-year bonds issued by Spain, the euro zone's fourth-largest economy, rose to 6.28 percent.
German media commentators say the pressure on Italy, the euro zone's third-largest economy which has strong economic fundamentals despite its high debt-to-GDP ratio, shows that investors have no faith in the EU's crisis management.
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