EUROPE:ITALIAN AND Spanish bonds rose for the first time in six days yesterday and yields eased from euro-era highs as European policymakers stepped up talks aimed at preventing the debt crisis from spiralling out of control.
However, European equity markets tumbled as investors fled to perceived safe-haven assets amid mounting concerns over the health of the global economy.
The Swiss National Bank made a surprise attempt to halt the rise in the value of the franc, saying it was “massively overvalued”, but the impact of the move became more limited as the day wore on.
The Italian and Spanish prime ministers also made an effort to stem the rapid rise in borrowing costs that has sucked them into the heart of the euro-zone debt crisis.
Italian prime minister Silvio Berlusconi sought to quell market fears yesterday, saying his country is “up to the task” of tackling the debt crisis as its economic fundamentals are solid. He used a speech to parliament to blame the recent rise in its borrowing costs on factors beyond Rome’s control.
He offered no initiatives but instead pointed the finger at speculators, global economic weakness and general problems in the euro zone.
At a crisis meeting of his economic ministerial group last night, Spanish prime minister José Luis Rodríguez Zapatero discussed the financial situation ahead of a bond auction today. Unspecified new measures to combat the latest developments in the sovereign debt crisis will be announced at cabinet meetings later this month.
European Commission president José Manuel Barroso said the surge in Italian and Spanish bond yields to 14-year highs was cause for deep concern although they did not reflect the true state of the third and fourth largest economies in the currency area.
“In fact, the tensions in bond markets reflect a growing concern among investors about the systemic capacity of the euro area to respond to the evolving crisis,” Mr Barroso said in a statement.
He urged member states to speed up parliamentary approval of crisis-fighting measures agreed at a July 21st summit meant to stop contagion from Greece, Ireland and Portugal, which have received EU-IMF bailouts, to larger European economies.
But neither he nor European Monetary Affairs commissioner Olli Rehn offered any immediate steps to stem the crisis, which has flared again with full force less than two weeks after that emergency meeting.
The SP 500 index in New York fell for the eighth straight day, bringing its losses for the period to 8 per cent. Shares in the UK, Germany and Japan all ended the day down 2 per cent as investors continued to fret about the weakness of growth in the US and Europe and the risk of a policy mistake.
European stocks sank for a fourth day, extending an 11-month low. The Iseq index shed about 2.5 per cent, but remained above its lows of 2011. Irish 10-year bond yields were steady for most of yesterday’s session, closing slightly higher at 10.633 per cent. Gold hit another record nominal high of nearly $1,673 while 30-year UK bond yields fell below 4 per cent for the first time this year.
As a sign of the stress at European financial institutions, bank deposits at the European Central Bank doubled from last Friday to a five-month high. The ECB said banks deposited €104.9 billion on Tuesday, up from €49.9 billion on Friday. –(Additional reporting Bloomberg/Financial Times Limitied 2011)
