EU Faces More Bailouts as Euro Contagion Spreads to Portugal: Euro Credit
By John Fraher and James Hertling – Nov 30, 2010 10:20 AM GMT+0100
Investors’ attention will soon turn to the European Central Bank, whose Governing Council will decide on Dec. 2 whether it can afford to stick to a plan to withdraw emergency stimulus at the start of next year. Photographer: Hannelore Foerster/Bloomberg
The failure of the Irish rescue to stem a selloff across euro-region bond markets may spell more bailouts to come, starting with Portugal.
The costs to insure Portuguese debt against default rose to a record today and Spanish bonds slid the most since the euro’s debut for a second day, highlighting investor concerns that officials lack the tools to contain a debt crisis threatening the currency’s survival. The extra yield that investors demand to hold Italian debt over German 10-year bonds rose to the highest in more than 13 years.
“We are barely halfway through the current crisis in the euro zone,” Paul Donovan, deputy head of global economics at UBS AG in London, said in an interview with Ken Prewitt and Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance” program. “Unless we can see a further significant decline in bond yields in Portugal, the market is going to expect another bailout. And then market attention will turn to Spain.”