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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."
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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.
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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.
Vítor Constâncio, vice-president of the European Central Bank, weighed into the debate over a proposed banking union, arguing that the ECB should take charge of supervising the eurozone's top banks.
The comments underscored ECB policy makers' determination to drive forward a banking union -- in spite of scepticism by Germany's Bundesbank and the risk of damaging turf wars with other EU institutions.
Since its launch in 1998, the ECB's main task has been controlling inflation. But speaking in Frankfurt, Mr Constâncio said EU treaties already included provisions for giving it supervisory responsibilities. Out of the 17 eurozone national central banks, 14 already had responsibilities for overseeing banks, he said. "Institutional build-up would not be necessary."
Supervisory powers for the ECB have also been backed by Christian Noyer, France's central bank governor. Britain -- not in the eurozone -- also favours using the ECB to oversee a banking union.
However, the ECB vice-president confirmed there was no formal ECB position yet. German policy makers fear that expanding the ECB's tasks could weaken its control over inflation and just hours earlier, Andreas Dombret, a Bundesbank executive, had said proposals for a banking union "appear to be premature".
Separately, Sabine Lautenschläger, the Bundesbank vice-president, told a Frankfurt conference that a banking union had to be preceded by fiscal union.
A banking union should become "an integral counterpart" of monetary union, the ECB argued in its financial stability review, published on Tuesday, which identified a "potential aggravation" of sovereign debt crisis as a "key risk" to the block's financial stability that could plunge it into deep recession.
The ECB saw EU banks shrinking balance sheets by €1.5tn, mainly via asset sales, by the end of 2013 -- although that was less than estimated by the International Monetary Fund. The report did not consider the risks of a possible Greek exit from the eurozone, which Mr Constâncio said would be "virtually impossible to assess".
Reporting by Ralph Atkins and James Wilson in Frankfurt and Robin Wigglesworth and George Parker in London
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Showing 12 comments
On one of the videos on the side, why do they have Poland highlighted for? Geography fail
The solution to our present crisis depends first and foremost on changing ourselves and adjusting to the new reality. For this reason, throughout the world people are beginning to change their behavior- they are beginning to sense that their governments are not functioning properly and cannot provide solutions to their problems. As people come together in protest, they are aware of a new sense of empowerment. It is clear that these people enjoy the experience of a genuine democracy where decisions are made in a group spirit, rather than through lobbying and political maneuverings. However for the protests to succeed, they must remain in harmony with the law of globalization. Any solution that favors one sector or fraction over another is just as self-centered as the current system, and therefore bound to fail
If Germany didn`t run the EU on it`s own things would be completely different.
Brussel does a lot more to frustrate European countries. Now they want open borders with North Africa and a few communist countries. Great for Spain with their 50% youth unemployment, having Moroccan (already 65% of the Moroccan population in Holland have been in contact with Dutch police) taking their jobs. Also great for the European spending power, ones they made their money, they'll spend it in North Africa and Asia instead of Europe. Would be like USA having open borders with Mexico, only a little bit worse. At least those Mexican ain't Islamic.
North africa will always be a problem for europe until those countries are politically stabilized. There isn't a border, there is the sea. People that come from the sea usually ask for asylum and under the international law they can't be rejected without an inquiry and can't be arrested unless previous offenders. No need to say they probably will disappear in europe before their status is confirmed.
But anyway I don't get what's wrong with being islamic. Illegal immigration is bad for economy because they are aliens that usually can't find a regular/lawful job and don't pay taxes. But this has nothing to do with their religion.
Nice....they took a loan for the banks and gave the bill to the people .....well.....through austerity measures (troika).... You like here in Greece are scre**8. The measures will devastate more the middle class and the debt will become bigger and bigger. Our only solution is to leave the eurozone, The bailouts are huge mistakes. Not looking good. Holding breath of the Greece elections.
Really? You know they aren't EVER going to vote for austerity. They can't: they'd have to actually be responsible for themselves on a personal level, and those that take in the Socialist system will never do that. Instead of letting the weaker Economy's leave the Euro, do what China do, de-value the Euro to make it more competitive.
Not tying yourselves to the EUro was the single smartest thing the Brits have done in 50 years. It is eminently commendable.
Greece, Portugal, Ireland, Spain and Italy should have their own currencies; then they have more tools to handle their treasury problem. Furthermore individual currency would be easier to limit one crisis in one country.
The EU should change thinking; assisting them to have their own currencies in orderly change; this is a big and complicated work, it might need 1-3 years to be completed.