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Image: Virginia Mayo/AP

Barroso warns: the Eurozone debt crisis is spreading

The President of the European Commission tells us what we already know, as he calls for “full backing” for struggling countries.
Aug 4th 2011, 4:27 PM 799 21

THE PRESIDENT OF the European Commission, Jose Manuel Barroso, has written to EU governments warning them that the Eurozone debt crisis is spreading and may spread beyond its smaller economies.

The BBC reports that Barroso urged governments to revisit the current status of the European Financial Stability Fund, the Eurozone’s current bailout mechanism, so that the debt crisis which has already forced three countries into default may not spread.

The call for a renewed debate on the purpose of the bailout fund has not been welcomed, however, with a spokesman for German finance minister Wolfgang Schäuble saying it may not be wise to reopen discussions less than two weeks after amending the terms of the bailouts for Greece, Ireland and Portugal.

The cost of borrowing for larger, but vulnerable, economies like Spain and Italy has risen again today as investors shun the opportunity to lend money to their governments.

Bloomberg reported that the Spanish treasury this morning managed to sell off €3.3bn of medium-term bonds, but was forced to pay a far higher interest rate than it had done even a month ago.

For three-year bonds, Spain was forced to offer an interest rate of 4.81 per cent – well up from the 4.29 per cent that it paid for an identical bond issued only last month.

Reuters reported that the European Central Bank had resumed its controversial policy of buying up the bonds of weaker countries, but cited an inside source which said it was only buying government bonds issued by Ireland and Portugal.

European stock markets are also facing a tumultuous afternoon: the FTSE 100 index is down over 3 per cent this afternoon as investors dump shares in favour of gold and silver.

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Gavan Reilly

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