European markets tumble as investors fear Italian default
Investors in Europe have set their sights on Italy, speculating that if a Greek bailout isn't approved and Athens defaults on its government debt, Italy is next.
European stocks fell sharply Tuesday amid larger worries about European resolve on a Greek bailout and speculation that Italy is edging toward default.Skip to next paragraph
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Italy's cost of borrowing has soared this week and yields on the government's benchmark 10-year bonds rose to a euro-era record earlier today. Markets in London, Paris, Madrid, and Milan fell sharply in morning trading.
Italian Finance Minister Giulio Tremonti today chairs an emergency session to cut $56 billion from the budget, an austerity measure designed to reassure markets.
Analysts say it is not the Greek crisis per se, but the lack of an agreed EU rescue and concomitant political resolve, that troubles markets and is focusing attention on Italy’s position.
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Jacques Cailloux, chief European economist for the Royal Bank of Scotland, said Monday that the Italian crisis represents “a new phase” in the financial crisis of Europe, and warned against a “domino effect.”
Yields on Italian bonds leaped from 5.2 percent yesterday morning to near 6 percent today -- drawing comparison to a similar spike last November in Ireland, a substantially smaller market. Safer German 10-year bonds -- the eurozone benchmark -- are yielding under 3 percent. The 300 basis-point difference, or spread, between the two reflects investor fears over the greater likelihood of an Italian default.
The EU meeting on Italy yesterday took place with little advance warning. European officials declined to call it a “crisis” meeting, though it was set in the wake of sharp stock falls in Italy Friday. The EU officials had gathered to discuss a second Greek bailout following a $150 billion package promised last year.