Tim Wallace
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Spanish 10-year yields soar above 7.5 per cent

Moody’s puts Germany rating on negative outlook

Short-selling bans fail to impress rattled markets

THE EUROZONE crisis flared back up yesterday as Spanish and Italian government borrowing costs soared to levels not seen since the start of the year, while Germany and other safe haven nations came under pressure from ratings agency Moody’s.

The euro hit a two-year low against the dollar, trading in stocks of Italian firms including UniCredit was suspended as the country’s main market fell, and Italy and Spain introduced short-selling bans to try to ease the burden on markets.

Data showed confidence in the euro-area economy diving, while oil prices fell on the worsening outlook.

A new crisis in Spanish regional funding kicked off the panic, after Valencia called for a bailout from the central government on Friday and Murcia indicated it may follow, with others expected to need aid too.

Investors, fearing this could tip the indebted state over the edge, sent 10-year bond yields to 7.565 per cent, a euro-era high, ending the day up 0.231 points at 7.498 per cent.

Analysts warned the country could see its credit rating cut to junk status. Spain is currently on Moody’s lowest investment grade rating.

Last night, Moody’s piled on the misery by putting the treasured triple-A debt ratings of the Netherlands, Luxembourg and even Germany on a negative outlook.

The agency said the revision was based on fears that these countries would end up shouldering huge debt burdens in order to keep the Eurozone together, especially if Greece were to exit.

New data also showed that the overall debt position of the Eurozone is relentlessly worsening – government debt stood at 88.2 per cent of GDP in the first quarter, up from 86.2 per cent a year earlier.

Meanwhile the European Commission’s consumer confidence indicator plunged again from minus 19.8 in June to minus 20.3 in July, and ratings agency Fitch warned the crisis has doubled the proportion of sovereigns and financial services firms with negative credit outlooks so far this year.

Economists said no respite is likely in the near term. “Euro crises have a tendency to emerge in August – many decision makers go on holiday, financial markets are thin meaning that any perturbation is exaggerated,” said the CEBR’s Douglas McWilliams.

Stocks slumped across the Eurozone, with Spain’s IBEX down by around five per cent at one point, though it recovered to end down 1.1 per cent.

FTSE MIB tumbled 4.8 per cent in the morning, recovering to an overall loss of 2.76 per cent when markets closed.