At a gathering of business leaders in London yesterday, an unusually blunt Osborne risked provoking anger in Berlin by hinting that a so-called Grexit could persuade German taxpayers to prop up debts from troubled Eurozone states.
“I just don’t know whether the German government requires a 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,” Osborne said.
“I ultimately don’t know whether Greece needs to leave the euro in order for the Eurozone to do the things necessary to make their currency survive.”
His comments could irritate German Chancellor Angela Merkel, who has held out against eurobonds.
Despite not being central to the decision of “whether to let Greece go or keep them in,” the UK government continues to provide advice to its Eurozone neighbours, Osborne told the Times’ CEO summit, calling for bold, pre-emptive decisions.
“Everyone said to the Eurozone that if you do not directly recapitalise these [Spanish] banks, if you do it via the Spanish sovereign, then you are not going to convince the market that the Spanish sovereign is entirely credible… and yet they went ahead down this route,” he complained, predicting a “long period of uncertainty and fragility” if problems are only addressed after they have flared up.
Osborne was speaking after yields on Spanish 10-year government bonds shot up to over 6.8 per cent – a euro-era high – before ending the day up 20 basis points, or three per cent, at just over 6.7 per cent.
And rating agency Fitch downgraded 18 Spanish banks, having slashed its sovereign rating last week.
CaixaBank, Bankia and Banco Popular Espanol saw their ratings downgraded, after BBVA and Santander had been cut on Monday.
Meanwhile European Commission vice president Joaquin Almunia yesterday warned Spanish banks that they should have to pay a rate of at least 8.5 per cent on any cash they get from EU aid channelled via the Spanish state.
Spain’s prospects are weighed down by banking and housing crises that appear to be moving from bad to worse. Data released yesterday by a Spanish surveyor showed a fall of 11.1 per cent in house prices last month, compared to a year earlier. Prices have plummeted by nearly a third from their peak.
Elsewhere in the Mediterranean, Italy’s bond yields mirrored Spain’s by edging towards the dreaded seven per cent mark. Yields on 10-year bonds hit 6.17 per cent.
“Although there is nothing sacrosanct about the seven per cent mark, it resonates as a critical juncture,” said George Magnus of UBS. “Italy’s levels are very resistant to falling – are they spiking at seven per cent, or are they finding a new home [at these higher rates]?”
As the threat of falling out of the euro grows in Greece, reports yesterday suggested that up to half a billion euros are being pulled out of the banks on some days.
With new elections scheduled for the end of this week, a failure to elect a government capable of resolving the crisis could see Greeks hurrying to withdraw even greater amounts of their cash.