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Fears Rise Over EU Handling of Debt Crisis

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Financial Times — Spain’s borrowing costs hit a euro-era high on Tuesday amid sagging investor confidence that Europe can prevent its debt crisis from worsening and wrangling among policy makers over how to implement cross-border banking supervision.

The yield on Spanish benchmark 10-year debt hit 6.8 per cent just days after eurozone finance ministers agreed a €100bn bailout package for the country’s banks. The move was accompanied by rising bond yields in countries deemed less risky, such as Germany and the UK, where market interest rates have been at record lows.

“The crisis is deteriorating at an ever-increasing pace,” said Mark Schofield, a senior strategist at Citigroup. “Investors are increasingly pricing in either of the two tail risks – full eurozone break-up or fiscal union.”

Officials have insisted the EU has sufficient short-term mechanisms to deal with the crisis in the form of its rescue funds, while the debate over longer-term measures has shifted towards greater fiscal co-ordination and Europe-wide banking supervision.

Angela Merkel, German chancellor, spoke out in support of European banking regulation, although she stopped short of backing a region-wide resolution scheme, which Berlin fears could burden the country with joint liability for other’s debts.

“Germany – and I can say this for the whole country – is prepared to do more on integration but we cannot get involved in things which I am convinced will lead to an even bigger disaster than the situation we are in today,” she said.

In London, George Osborne, Britain’s chancellor of the exchequer, questioned whether a Greek exit from the eurozone was a price that had to be paid to persuade Germany to save the single currency.

“I just don’t know whether the German government requires Greek exit to explain to their public why they need to do certain things like a banking union, eurobonds and things in common with that,” he said at a business event organised by the Times newspaper.

Continue Reading on www.ft.com
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