The European Central Bank has opened the door to emergency support for the Spanish and Italian bond markets, setting off a blistering rally on bourses across the world. The regional leader of Asturias in Spain has become the country’s first major figure to call for a radical change of strategy and exit from the euro, unless monetary union is fundamentally reformed. The euro has completely broken down as a workable system and faces collapse with “incalculable economic losses and human suffering” unless there is a drastic change of course, according to a group of leading economists. Spain is battling to avert a fully-fledged sovereign rescue after borrowing costs spiralled out of control, with dangerous knock-on effects in Italy and Eastern Europe. It is time for Spain and the victim states to seize the initiative. Spanish borrowing costs have surged to euro-era highs despite draconian fiscal cuts and backing from the German parliament for the country’s €100bn bank rescue package. Italian premier Mario Monti is mulling emergency action to take direct control of Sicily’s regional government before the island spirals into a full-blown financial crisis, fearing contagion to the rest of Italy. Fund managers from across the world have begun to doubt Germany’s ability to withstand further shocks from the region’s debt crisis, registering a stark change in view since the late spring. The Economic Cycle Research Institute in America has doubled down on its recession call. A fresh US slump is not just a risk any longer. It has already begun. The euro has plunged to multi-year lows against a range of currencies on fears of a deepening slump in Italy and Spain, and ugly disputes between eurozone leaders. Spanish premier Mariano Rajoy has raised VAT sharply in a humiliating volte-face and pushed through €65bn (£51bn) of drastic austerity measures to comply with a European Union ultimatum, risking a downward spiral into full depression. The German Constitutional Court may take up to three months to rule on an injunction by private citizens and Left-wing lawmakers aimed at blocking the eurozone bailout machinery, leaving markets hanging in suspense as the eurozone debt crisis eats at confidence. The European Central Bank has vowed to do whatever it takes to hold the euro together after the North-South gap in borrowing costs reached fresh extremes, pushing the two halves of monetary union closer to breaking point. Joachim Gauck, the German president, has ordered Chancellor Angela Merkel to clarify exactly what she agreed behind closed doors at the EU crisis summit ten days ago.
Ambrose Evans-Pritchard
Ambrose Evans-Pritchard is International Business Editor of The Daily Telegraph. He has covered world politics and economics for 30 years, based in Europe, the US, and Latin America. He joined the Telegraph in 1991, serving as Washington correspondent and later Europe correspondent in Brussels.
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Sunday, 29 July 2012
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