The prospect of a euro zone breakup intensified on Tuesday night as borrowing costs around the region soared and the Dutch prime minister said it should be possible to expel some members from the currency union. Investors are rapidly losing hope that a solution to the sovereign debt crisis will be found, and their fear was demonstrated by rising bond yields – the rate of interest governments have to pay to borrow – across almost all single-currency countries. The Dutch premier, Mark Rutte, stoked fears that a collapse could become a reality as he aired the prospect of countries being ejected, albeit as a last resort. "We would like countries to be able to be pushed out of the euro zone," Rutte said on a visit to London, adding member countries must "put out the fire" of the debt crisis. As analysts warned of "terror taking hold", even some of those countries until now regarded as safe havens, such as the Netherlands, came under pressure as fears about countries' creditworthiness spread from peripheral countries such as Greece into Europe's core. One bond expert described this as the most worrying day yet in the crisis - he said - France was now suffering a "full-blown run" on its debt, with investors dumping French bonds to move their money to safer havens. The source added that the credit default swap (CDS) market – where investors in effect bet on the prospects of countries going bust – now indicates that the chance of France losing its coveted top AAA rating is a near certainty. Italy's growth figures for the third quarter have yet to be released, but the latest update for the euro zone does not bode well. The 17-nation group grew by just 0.2% during the quarter, and many forecasts expect the euro zone economy to contract in the final months of this year. In Spain, there was more evidence of investors' frayed nerves as the government was forced to pay out its highest borrowing costs in 14 years on new debt. Investors did come forward with enough money, but Spain's borrowing costs shot up to more than 5%, compared with less than 4% at similar recent sales. Belgium was victim to the same flight from eurozone bonds, and yields on a sale of 12-month debt by Brussels were at a three-month high. Investors were looking outside the currency union, and Switzerland fared rather differently at its latest debt auction. Its sale of six-month bills had an average interest rate of -0.3%. In other words, investors are paying the Swiss government for the privilege of lending their money to the country.
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Wednesday, November 16, 2011
The prospect of a euro zone breakup intensified
The prospect of a euro zone breakup intensified on Tuesday night as borrowing costs around the region soared and the Dutch prime minister said it should be possible to expel some members from the currency union. Investors are rapidly losing hope that a solution to the sovereign debt crisis will be found, and their fear was demonstrated by rising bond yields – the rate of interest governments have to pay to borrow – across almost all single-currency countries. The Dutch premier, Mark Rutte, stoked fears that a collapse could become a reality as he aired the prospect of countries being ejected, albeit as a last resort. "We would like countries to be able to be pushed out of the euro zone," Rutte said on a visit to London, adding member countries must "put out the fire" of the debt crisis. As analysts warned of "terror taking hold", even some of those countries until now regarded as safe havens, such as the Netherlands, came under pressure as fears about countries' creditworthiness spread from peripheral countries such as Greece into Europe's core. One bond expert described this as the most worrying day yet in the crisis - he said - France was now suffering a "full-blown run" on its debt, with investors dumping French bonds to move their money to safer havens. The source added that the credit default swap (CDS) market – where investors in effect bet on the prospects of countries going bust – now indicates that the chance of France losing its coveted top AAA rating is a near certainty. Italy's growth figures for the third quarter have yet to be released, but the latest update for the euro zone does not bode well. The 17-nation group grew by just 0.2% during the quarter, and many forecasts expect the euro zone economy to contract in the final months of this year. In Spain, there was more evidence of investors' frayed nerves as the government was forced to pay out its highest borrowing costs in 14 years on new debt. Investors did come forward with enough money, but Spain's borrowing costs shot up to more than 5%, compared with less than 4% at similar recent sales. Belgium was victim to the same flight from eurozone bonds, and yields on a sale of 12-month debt by Brussels were at a three-month high. Investors were looking outside the currency union, and Switzerland fared rather differently at its latest debt auction. Its sale of six-month bills had an average interest rate of -0.3%. In other words, investors are paying the Swiss government for the privilege of lending their money to the country.
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The UK bond market was also one of the few beneficiaries of the heightened panic around the eurozone. The yields on UK government bonds, or gilts, fell – meaning their prices rose – and outperformed German government bonds.
Other countries in Europe but outside the eurozone, such as Sweden and Denmark, have also seen their borrowing costs fall.
German Chancellor says she would give up sovereignty to achieve closer economic and political ties in the Europe as Mario Monti is appointed prime minister and finance minister of Italy and BoE warns on eurozone.
European markets chief Michel Barnier (below) has said he is working on "a toolbox" for crisis resolution, to be presented in coming weeks. ...but : US factories made more cars, electronics and equipment in October; overall output rose 0.7pc after a revised 0.1pc fall in September, figures from the Federal Reserve showed....yuuupppyyyyyy!!!!!!
He (or she) who pays the piper calls the tune.
Ireland, Portugal, Spain, Greece and Italy could all have told Merkel to bugger off and defaulted on all their debt, forcing Merkel to bail out her own banks (and probably France's too).
Instead they went for a freezing cold austerity shower in Reichskanzlerin Merkel's Temple of Germanic Financial Orthodoxy and now find themselves locked in a Teutonic death-grip with German financial "experts" flown in to occupy their treasuries.
No way out now, game over suckers. Enjoy all future decisions in Europe being made for the benefit of das Vaterland.
Bild Zeitung can't yet bring itself to report on Merkel's willingness to cede (some) German sovereignty. How are they going to tell their readers?
Probably waiting for Merkel's spin doctors at CNC Communications
(one of their slogans is "Don't take no for an answer") to come up with a strategy.
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