Spanish and Italian borrowing costs rose sharply as traders bet that this week's policy action by central banks would prove to be an inadequate defence against continued political and financial chaos.
Spanish and Italian borrowing costs rose sharply as traders bet that this week's policy action by central banks would prove to be an inadequate defence against continued political and financial chaos in the eurozone.
The yield on Spain's benchmark 10-year bond rose above the 7% bail-out level amid fears that opposition in Germany and Finland could crush the rescue plans agreed in Brussels last week.
The Finnish finance minister, Jutta Urpilainen, said her country was not prepared to keep the euro "at any cost".
She said the euro was of "use for Finland", one of the eurozone's last remaining AAA-rated countries, but added: "Collective responsibility for other countries' debt, economics and risks; this is not what we should be prepared for. We are constructive and want to solve the crisis, but not on any terms."
European stock markets fell, the euro dropped to its lowest level for three and a half years against the pound, and the yield on Italian 10-year bonds rose to 6.25pc, despite the move by the European Central Bank, the Bank of England, and the Bank of China to loosen monetary policy.
Yesterday a frustrated Joerg Asmussen, an ECB board member, said too much was being expected of the bank. "We must explain what the limits of our powers and mandate are," he said. "The ECB cannot compensate for what others - notably political authorities - fail to do." He added: "There is no substitute for good policies."
In Brussels there were promises of more solutions at the Eurogroup meeting on Monday. One official told reporters that the 17 finance ministers intended to reach a "political decision" on how to support Spain.
In Cyprus, the finance minister blamed Greece for being forced to appeal to Russia, Brussels and the IMF for help. Vassos Shiarly said it was "not fair" that Cyprus lost euros 4.2bn (pounds 3.3bn) - or 24pc of GDP - when Greece took a 50pc hair-cut on its debt. "It was a European problem," he added. "I believe we should have shared that loss fairly on a level playing field."
In Athens, the new prime minister, Antonis Samaras, kicked off a three-day finance debate amid confusion over whether he would try to renegotiate Greece's bail-out. In a difficult week for bail-out countries, a court in Portugal also ruled that plans to cut civil servants' pay was unconstitutional.
Meanwhile, Italy unveiled a further euros 26bn of austerity cuts to be imposed by 2015, while at the same time announcing that a 2 percentage point increase in VAT would be delayed until July next year. "Being able to avoid the VAT increase will have a [positive] effect on the economy," said Vittorio Grilli, the deputy finance minister.
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