Bloomberg
Editorial
August 4, 2011
The U.S. Congress may have narrowly avoided a government-debt disaster, but financial troubles are resurging across the Atlantic. If European leaders can’t find the political will to implement the drastic measures needed to stem their crisis, markets could soon put them in an untenable position.
The market for Italian and Spanish government bonds offers an indication of how little confidence Europe’s most recent package of rescue measures has inspired. As of Wednesday, the yield on the 10-year Italian bond stood at 6.08 percent, near its highest point since the introduction of the euro. The yield was about 3.7 percentage points higher than the yield on 10-year German bonds -- a spread that suggests rising concern that Italy might default. The comparable spread on Spain’s 10-year bond was 3.9 percentage points, up from 3.2 a month earlier. Belgium’s spread hit a euro-era high of 2.1 percentage points.
Investors’ jitters are dangerous, because they can become a self-fulfilling prophecy. As worries about default push up governments’ cost of borrowing, debts that were once manageable can become unsustainable. No wonder European Commission President Jose Barroso, while calling the rising yields in Italy and Spain unwarranted, voiced “deep concern” Wednesday about the market developments.
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