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Meltdown in Europe’s sovereign bonds

business Updated: Nov 21, 2011 22:57 IST
eurozone debt crisis

The euro zone’s debt crisis struck again at the heart of Europe on Monday despite a clear-cut election victory in Spain for conservatives committed to tougher austerity.

Spain’s Socialists became the fifth government in the 17-nation single currency area to be toppled by the debt crisis this year. Portugal, Ireland, Italy and Greece went before.

But an absolute parliamentary majority for Mariano Rajoy’s centre-right Popular Party brought no respite on financial markets increasingly alarmed by the absence of an effective firewall to halt a meltdown on sovereign bond markets.

The risk premiums on Spanish, Italian and French government bonds rose as investors fled to safe-haven German Bunds, while European shares fell more than 2% after Moody’ warned that France’s credit rating faces new dangers.


Ratings agency Moody’s said a recent rise in interest rates on French government debt and weaker economic growth prospects could be negative for France’s credit rating.

“Elevated borrowing costs persisting for an extended period would amplify the fiscal challenges the French government faces amid a deteriorating growth outlook, with negative credit implications,” senior credit officer Alexander Kockerbeck said in Moody’s Weekly Credit Outlook dated Nov. 21.

ECB must intervene

The European Central Bank (ECB) must intervene “massively” to buy the bonds of debt-wracked Europe as it faces a catastrophe that could lead to war, Poland’s finance minister said.

Jacek Rostowski, whose country currently holds the rotating EU president, told German daily Frankfurter Allgemeine Zeitung: "We have a hideous choice ... either a massive intervention from the ECB or a catastrophe.”