The Italian finance minister, Giulio Tremonti, has held crisis talks with Jean-Claude Juncker, chair of the Eurogroup of finance ministers. The Spanish Prime Minister, Jose Luis Zapatero, “has postponed the start of his holidays” to keep “an eye on the international economic situation.” Both countries’ bond yields have reached their highest rates in 14 years, and are considered to be at unsustainable levels. As the Guardian reports, the stock markets have taken fright “as fears grew over the health of the global economy and the ongoing European debt crisis.”
Dan O’Brien, in the Irish Times, with a cheery assessment…
As the debt crisis goes critical, it is worth reflecting on how big is the change taking place. Just three years ago, people in the rich world – Europe and the US – enjoyed August free of any care that the wealthiest states in human history would go bust.
This August, there are legitimate fears that many governments in the rich world will not be able to fund themselves, leading to outcomes of potentially Armageddon-like proportions which could alter peoples lives more dramatically than any single event in many decades.
How the world has changed in 36 months.
[Europe is still sexy! – Ed] Of course it is.
Adds Some important points from BBC Europe editor, Gavin Hewitt
Here’s the problem: The markets look at many European economies and see high debt, high unemployment, low growth and fragile banks. The sums don’t add up. Where will the growth spring from to bring down the debt?
With Greece they have seen a second bailout that will result in private investors taking losses. Suddenly buying up a tranche of European debt doesn’t look very attractive.
In the past two days borrowing costs for Spain and Italy have reached 14-year highs. The President of the European Commission, Jose Manual Barroso, said the market pressure was “clearly unwarranted” but was cause for “deep concern.”
Finnish Prime Minister Jyrki Katainen described what was happening as a “a very alarming and scary thing… The whole of Europe,” he said, “is in a very dangerous situation.”
Europe’s vulnerable economies often don’t help themselves. Austerity packages are often not what they seem.
The key challenge is growth, but an equal problem is political.
Some politicians have openly said that the answer to the crisis is “more Europe”. Others accept that the more prosperous countries like Germany will have to end up bankrolling the weaker countries if the eurozone is to survive. That is not what the Germans signed up for. As so often happens in Europe, officials are pulling in one direction and voters in another.
At some stage – if it materialises – fiscal union will have to be put to the voters. It cannot be slid through by stealth or incrementally.
Down the road a great tussle lies between those who want a closer Europe and those who want a looser, more pragmatic Europe. That struggle is always there but it is being brought closer by the continuing eurozone crisis.