Europe's governmental debt crisis is deepening, with borrowing costs for both Spain and Italy increasing again on Tuesday.
European governments agreed to a $125 billion bailout for Spanish banks over the weekend, but investors have shown little regard for the rescue package. The interest rates for Spanish and Italian government bonds both topped 6 percent, nearing the point at which Greece, Portugal and Ireland all were forced to seek international bailouts in the last two years.
Austrian Finance Minister Maria Fekter drew the ire of Italy by suggesting that Rome's “very high deficits and debt” may force it to seek a bailout. Italian Prime Minister Mario Monti called her comments “completely inappropriate.”
Several financial analysts said the uncertainty of the terms of the Spanish bank bailout contributed to the increase in government borrowing costs. Analyst Daniel Alvarez at XTB Brokers also said there is the unpredictability of next Sunday's Greek parliamentary elections that amount to a referendum on whether Greece stays in the 17-nation eurozone or becomes the first country to leave it.
“First because we don't know the details of the (bailout) plan and it seems that in Europe everyone has a conflicting voice and there is an enormous lack of consensus which means we don't know the exact details. Second, undoubtedly the timing is also an important reason. It's true that it was urgent to take that measure (bailout), a measure which as far as we know continues to be positive, but the fact is that the rescue of the Spanish banking sector will be associated with the next element, the next important event in the markets which is none other than the Greek elections this weekend.”
Alvarez said investors' fears are not just focused on Spain's precarious financial state, but rather on the eurozone as a whole.
“The attack is not on Spain, the attack is on Europe as a project and that is something we must all have clear, and proof of that is that the Italian MIB index was the one
that fell most (Monday) – almost 3 percent on market closure – so it's clear the attack is on Europe.''
