The euro zone’s sovereign-debt crisis intensified Tuesday, with yields on Spanish, Italian and other peripheral government bonds soaring in the wake of a weekend meeting of European Union finance ministers that failed to soothe fears of the potential for future defaults.
The yield on 10-year Spanish government bonds jumped to around 5.63%, strategists said, a day after surging to 5.43%.
The move sent the yield premium demanded by investors to hold 10-year Spanish debt over comparable German bunds to more than three full percentage points.
“Ireland’s bailout did nothing to ease the euro-zone debt crisis: it might have even made it worse,” said Steven Barrow, currency and fixed-income strategist at Standard Bank. “For now the market sees a pattern emerging and the next piece of the bailout puzzle seems to be Portugal, with Spain to follow after that.”
The yield on 10-year Italian bonds also rose for a second day to hit 4.77% from around 4.64% on Monday. Portuguese, Greek and Irish bond yields also rose. And outside the periphery, the Belgian 10-year bond yield continued to climb, hitting 3.97% versus around 3.86% on Monday.
How long before Europe realizes that bailing out the banks, announcing plans to cut their deficits to 3 percent in four years time, and getting bailouts from EU and IMF will not work? The sovereign debt crisis will continue until these European countries announce balanced budgets effective immediately (2011) or, at the worst case, next year (2012) and that they will never again bail out the banks. They also have to leave the Euro, which is partly responsible for the mess to start with.
Unfortunately, I doubt the European governments will implement these measures. And if they were to do so, the people would be in full revolution. The only easy way out I see is if the economy suddenly stages a huge recovery. Barring that, it looks like things will be getting worse, possibly much worse.