MidnightWatcher – Prophecy in Motion

By Eric Reguly – “The European debt crisis is rolling across the continent at alarming speed, proving that almost no country is immune to the contagion unleashed by Greece and Italy as confidence in the region’s ability to reduce its debt loads evaporates.

Yields on the 10-year bonds of France, Belgium, Spain and Austria all soared to record euro zone highs on Tuesday in spite of fresh data showing that the German economy is still expanding and despite the tentative launch of caretaker governments in Rome and Athens with mandates for economic reform.

The mass selloff drove up the debt yields of countries that had been considered havens, including Finland and the Netherlands. ‘Global financial markets are facing a key pivotal point,’ analysts at Barclays Capital said in a Tuesday research note. ‘A further escalation of the European debt crisis is putting at risk the nascent stabilization of global growth.’

Italy’s post-Silvio Berlusconi honeymoon proved exceedingly short-lived. Last week, yields on 10-year Italian bonds went to a record 7.48 per cent. They dipped after Mr. Berlusconi resigned as prime minister, then came roaring back, climbing back above 7 per cent on Tuesday, even as Mario Monti, his replacement, came close to forming a new, cross-party government. Mr. Monti is to unveil his cabinet on Wednesday in Rome.

The bond selloff hit France, whose triple-A credit rating is at risk.” Read more.

‘Alarm bells should be ringing for France’: Fears for Eurozone’s second-largest economy as borrowing costs soar – “Eurozone bond markets suffered from a mass sell-off yesterday – with previously healthy economies finding themselves sucked into the debt crisis. The yield on French government bonds climbed to 3.63 per cent. With the German equivalent at just 1.75 per cent, the difference between what it costs Paris and Berlin to borrow is at its highest level since the euro was established in 1999. And an influential report added to market nerves with a claim that the French economy is the 17-member eurozone’s second biggest but only the 13th healthiest. The Lisbon Council think tank and Germany’s Berenberg Bank rates France one rank above Italy, and one below Spain. ‘Alarm bells should be ringing for France,’ said Holger Schmieding, Berenberg’s chief economist. Those bells might also ring, however, for the triple-A rated countries Austria, Finland and the Netherlands, which also saw bond yields worryingly.” Read more.