As Mario Draghi emerges as ECB president frontrunner...

BANK of Italy governor Mario Draghi looks set to take the helm of the European Central Bank after Nicolas Sarkozy yesterday voiced French support for his appointment.

The news of Draghi’s (pictured) likely appointment as a successor to Jean-Claude Trichet, who steps down in October, comes at a precarious time for the Eurozone.

European sovereign borrowing costs jumped yesterday as official data showed that Greece’s 2010 deficit figures have had to be revised upwards for a second time, stirring fresh fears that the Eurozone could soon see its first default.

The official 2010 deficit league table, published by Eurostat, also showed that the UK had the third highest shortfall in Europe last year, as the state spent £151bn more than it earned, equal to 10.5 per cent of GDP.

That puts UK plc a hair’s breadth behind Greece, which had a deficit equal to 10.4 per cent of GDP last year versus Athens’ most recent estimate of 9.6 per cent.

Topping the league is Ireland with a deficit equal to a staggering 32.4 per cent of GDP, about two thirds of which is attributable to Dublin’s guarantee for the debts of its stricken banks.

The data showed that France had the tenth biggest deficit at seven per cent of GDP, with Germany’s at 3.3 per cent. Under the public debt rules crafted when the euro was originally created, only Luxembourg, Finland and Estonia would be permitted to become members of the single currency, with deficits under three per cent.

Bond yields for peripheral Eurozone states leapt in response: the interest on both Portuguese and Irish five-year debt jumped 40 basis points to 11.9 per cent and 11.8 per cent respectively.

And Spain was forced to pay 0.5 per cent more for €2bn (£1.78bn) of short-dated debt than at a similar sale in March. Nervous investors pushed up yields on three-month bonds to 1.37 per cent and yields on six-month bills to 1.87 per cent. Spain is being left to fend for itself in bond markets after the European Central Bank put a stop to its bond-buying programme, while at the same time hiking interest rates.

Meanwhile, a RICS/Ci survey revealed yesterday that the Portuguese housing market is moving into freefall due to sharp drops in demand.