Fears over Italy Ramp up Crisis in Currency Club
The eurozone debt crisis intensified amid the first serious indicates that contagion is spreading to the third biggest economy in the currency club–Italy. Bond yields of Italy, which have an inverse relationship with prices, leapt to nine-year high and the country’s stock market and bank shares tumbled.
Concerns over Italy also hit the euro, which fell by nearly 1% against the dollar. Investors worry that as Italy is considered too large to bail out, problems in Rome might put the eurozone project in doubt.
EU Fears about Greece Deepen
According to a leaked account of a meeting, it is indicated that EU commissioners have a ‘profound sense of foreboding’ concerning Greece and the future of the eurozone.
It is said that this was a response to the ‘damning failure’ of eurozone ministers to agree a new bailout for Greece this week. It is also added that the markets would now ’smell blood’ and a default on Greek government debt would cast threats to the viability of the European Central Bank.
EU Rules Out Interim Aid for Portugal
Top European Union officials have downplayed the likelihood of interim aid being given to Portugal before June’s election there, insisting that they are looking to negotiate a bail out package which could be given cross-party support in Lisbon by mid-May.
Portugal formally asked for assistance from the EU and IMF after finding it increasingly expensive to refinance debt on the capital markets. Portugal will be required to implement sweeping austerity measures and conduct a major privatisation programme when negotiations start next week.
Downgrades spark Sell-off in Banks
Nervousness ahead of stress test results for Irish banks and ratings downgrades for financials in Greece and Portugal sparked losses for Europe’s equities indices.
Shares in Irish banks were suspended ahead of the test results. However, fears that the test would reveal capital shortfalls contributed to losses for banking stocks across the entire continent.
Jump in Inflation Spurs Euro
The euro climbed after high-than-expected euro-zone inflation data caused further reassessment of likely interest rate policy of the European Central Bank.
Defying expectations for a slight easing, inflation in the 17-member bloc jumped to 2.6% in February.
According to analysts, it is said that the data would put the rubber-stamp on an April rate increase of 25 basis points to 1.25% and that the likelihood of further increases was now growing as oil and food prices were still rising.
Portuguese Void Fuels Debt Costs
Portugal’s borrowing cost increased to euro-era high as markets and European policymakers fretted that the country could be without a government for months in the face of an all but inevitable bail0out.
Interest rate for Portuguese bonds with durations from one to 10 years shot up. Portugal’s five-year bond yields hit a record high of 8.4% before falling back. Despite of the focus on Spain, its borrowing costs have broken free from the rest of the so-called peripheral eurozone countries.
Tax Breaks at heart of Osborne Budget
George Osborne is expected to put tax breaks for companies and hard-pressed families. However, his scope for giveaways is constrained by a sombre backdrop of rising inflation and weakening tax revenues.
The chancellor has promised a “Budget for growth” and could accelerate cuts to corporation tax, reinforcing Mr Osborne’s pledge to give UK one of the most competitive tax regimes in the world.
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