November 17 signalled new fears for the euro, sowing seeds that soon might spread – of more unsustainable debts. Spain’s ten-year bond yield reached a dangerous level, so that even France’s borrowing rate rocked higher.
On Thursday, what the euro zone’s third and fourth-largest economies, Italy and Spain, paid on debt (6.8% and 6.6%, respectively) was more than three times Germany’s rate (1.8%). France was (3.6%).
This was even though the ECB had bought bonds earlier in the week, to ease pressures. Greece charted 30 percent territory, but Italy and Spain, so much bigger, pose a different scale of problem, maybe too big to handle.
Analyst Manoj Ladwa, with ETX Capital, said: “The yields on these bonds continue to go up. The price continues to come down for these bonds, and if the ECB is not able to step into the market and buy enough, the worst case scenario is going to happen, and those bond yields are going to carry on moving higher and higher as we’ve been seeing in the last few days or so.”
The European Central Bank bought bonds in discreet quantities last week, 4.5 billion euros-worth, so as not to dilute incentives for countries deep in debt to reform their economies.
Chancellor Merkel supports this, and opposes issuing eurobonds, which would amalgamate euro countries’ debts.
Merkel said: “If politicians think the ECB can solve the euro crisis, then they are mistaken. My main point is political action.”
But what about contagion? Just a few euro states rate financial-economic top marks, with Germany strongest in the triple-As, then come Luxembourg, the Netherlands and Austria.
Austria and France are up there too, but France is looking queasier, Belgium and Slovakia respectable but weakened.
These states are in the ‘rescue-may-be-needed’ category: Italy and Spain of serious size, unlike Malta and Slovenia.
Greece, Portugal and Ireland already have rescue plans in play. Cyprus’s debt puts it in the red zone too.
Just six euro zone states of the total 17 enjoy triple-A credit ratings, which gets them reasonable borrowing rates. But France’s is in question. Paris has been warned.
France’s real economy is stagnating, with third quarter growth of only 0.2 percent. The full year’s results point to recession, making paying the debt harder.