MADRID: Spain and France struggled with government bond auctions on Thursday, throwing into sharp relief the threat of larger euro zone economies succumbing to the debt crisis that began in Greece and is already lapping at Italy's shores.
Madrid was forced to pay the highest borrowing costs since 1997 at a sale of 10-year bonds, with yields a steepling 1.5 points above the average paid at similar tenders this year. The euro fell on the foreign exchanges in response.
Paris fared a little better, but again had to pay markedly more to shift nearly 7 billion euros of government paper. Fears that the euro zone's second largest economy is getting sucked into the maelstrom have taken the two-year debt crisis to a new level this week.
"The euro zone has got to deliver something which is going to calm markets down and at the moment markets feel like they are being given no comfort whatsoever," said Marc Ostwald, strategist at Monument Securities.
Prime Minister Mario Monti outlines austerity measures aimed at restoring confidence in Italy's strained public finances later, when he goes before the Senate to seek a vote of confidence in his new government.
With Italy's borrowing costs now at untenable levels, Monti will have to work fast to calm financial markets given Italy needs to refinance some 200 billion euros ($273 billion) of bonds by the end of April.
But no amount of austerity in Greece, Italy, Spain and France is likely to convince the markets without some dramatic action in the shorter-term, probably involving the European Central Bank.
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