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World markets worried about containing Europe debt crisis

Despite the European Central Bank’s intervention today, last week's losses in the Asian and European exchanges continued, prompted by worries that Europe's debt crisis will spread.

By Correspondent / August 8, 2011

A broker reacts at the stock market in Frankfurt, Germany, Monday, Aug. 8, as the stock index fell slightly after the opening of trading. The borrowing costs of both Spain and Italy dropped sharply in early trading Monday after the European Central Bank signaled it would intervene in the markets to keep the two countries' bond prices supported.

Michael Probst/AP

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Berlin

The European Central Bank (ECB) has failed to convince the world's financial markets that it can contain the sovereign debt crisis to the eurozone.

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Asian and European exchanges on Monday extended the heavy losses suffered last week, despite the ECB’s decision to buy up Italian and Spanish government debt. Financial experts in the eurozone sharply criticized the ECB’s move.

“I was horrified when I read the news,” says Hans-Peter Burghof, chair of the banking and finance department at the University of Hohenheim in southern Germany. “The ECB is repeating exactly the same mistakes it made when it bought Greek and Portuguese debt.”

The intervention by the central bankers from Frankfurt did seem to bring some breathing space, though. Yields on Italian and Spanish bonds fell sharply on Monday morning, from more than 6 percent to about 5.2 percent. Yields relate to the interest rates governments have to pay creditors who hold their bonds and serve as an indication of the risk associated with lending to these governments.

Until a few weeks ago, the debt crisis involved mainly peripheral economies such as Greece, Portugal, and Ireland. But in recent days doubts have been raised about the ability of Italy and Spain, the No. 3 and No. 4 economies in the eurozone, to pay outstanding debts. As a result, yields of bonds for these two countries rose sharply.

'That's not what the ECB was created for'

Political leaders in Europe are concerned that the debt crisis could threaten the stability of the common currency. German Chancellor Angela Merkel and French President Nicolas Sarkozy were among the politicians who urged the ECB on Sunday to take action.

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