In These New Times

A new paradigm for a post-imperial world

Debt crisis threat to Spain and Belgium

Posted by seumasach on December 15, 2010

The next stage of the attack on the euro has begun with the rating agencies as usual providing the cue to the media and the City hedge funds, with the IMF lurking in the wings. Spain’s interest rate jumped dramatically whilst Britain, with its traditional “good housekeeping”, its virtual economy and still intact AAA rating, still offers only 0.75%. (The road to success lies, it seems , in economic destruction.) The answer would seem to be to curb speculative inflows from outside the Eurozone, notably from the City of London; but is Europe read yet for this dramatic fissure in the unity of the West? For the moment, it remains wide open to continued attack.

This is Money

15th December, 2010

Spain and Belgium were dragged deeper into the European debt crisis on Tuesday as financial turmoil continued to rock the Continent.

As fears deepened, the European Central Bank urged Europe to increase the size and scope of its €750bn (£636bn) rescue fund to be used for future bailouts of member states. ‘We are calling for maximum flexibility and maximum capacity,’ said ECB president Jean-Claude Trichet.

Concerns about Spain’s finances were highlighted by a surge in the interest rate that its government must pay to borrow on the international money markets.

Spain borrowed €2.5bn (£2.1bn) at a rate of 3.45%. This is up 46% from the 2.36% rate it paid when it raised similar funds a month ago. The equivalent rate in Britain is 0.75%.

In another blow to the eurozone, Belgium was put on the danger list by leading credit ratings agency Standard & Poor’s. The news came as European leaders prepared for this week’s critical summit, where the debt crisis that has already crippled Greece and Ireland will be top of the agenda.

Borrowing costs in the so-called PIIGS nations – Portugal, Ireland, Italy, Greece and Spain – have risen sharply in recent months on concerns over the scale of their debts.

Greece went to the IMF for £93bn of emergency aid over the summer and Ireland last month admitted it needed a £72bn bailout – including a £7bn handout from Britain.

It was hoped the rescues of Athens and Dublin would calm the financial markets but fears about Spain and Portugal in particular have refused to die down. Belgium was also in the firing line yesterday after S&P cut its outlook on the country from ‘stable’ to ‘negative’ and said its AA+ credit score was at risk.

The agency said Belgium would be downgraded if it did not solve the political stalemate that has gripped the country since inconclusive elections six months ago. ‘We believe that Belgium’s prolonged domestic political uncertainty poses risks to its government’s credit standing, especially given the difficult market conditions many eurozone governments are facing,’ said S&P credit analyst Marko Mrsnik.

EU leaders are holding crunch talks in Brussels on Thursday and Friday but are divided over the next steps to take.

Germany and France have rejected increasing the bailout fund and dismissed calls by Italy, Belgium and Luxembourg to issue joint euro-region government bonds.

The fragile state of the eurozone economy was underlined yesterday by figures showing industrial production in the single currency bloc increased by just 0.7% in October, less than the 1.3% expected by analysts

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