News / Europe

European Debt Crisis Deepens, Sparking Fears of New Bailouts

A Portuguese broker talks on the phone in Lisbon, 30 Nov 2010
A Portuguese broker talks on the phone in Lisbon, 30 Nov 2010

The debt crisis in Europe deepened on Tuesday as the cost of governmental borrowing for debt-ridden countries continued to rise amid fears Portugal and Spain would be the next countries forced to seek international bailouts.

Investors sold off government bonds from Portugal, Spain and Italy as their borrowing costs increased against the benchmark bonds of Germany, one of Europe's strongest economies.

The interest rates on bonds sold by Portugal, Spain and Belgium all reached their highest disparity against German bonds since the 1999 birth of the euro, the common currency used by 16 European nations.

With the growing financial crisis, the euro dipped below $1.30 and has now shed 7 percent of its value against the U.S. dollar since early November.

The increased borrowing costs for some European governments stem from fears that the debt contagion sparked by the bailout of Greece earlier this year and the $112 billion Ireland bailout last weekend will spread to other countries.

Both the Portuguese and Spanish governments have embarked on austerity programs, cutting spending on numerous government programs. They say they do not need financial help from their European counterparts and the International Monetary Fund.

But Greek and Irish officials made similar promises before seeking  assistance, leaving investors and policymakers worried that the debt crisis has yet to run its course.

While any further bailouts would not be welcomed, the most pronounced immediate fear appears to center on Spain. Its economy accounts for nearly 12 percent of the eurozone's economic production and is about twice the size of Greece, Ireland and Portugal combined.

On Tuesday, Spain's borrowing costs jumped to as high as 5.7 percent, more than 3 percentage points higher than that for German bonds. Just a week ago, the difference was two percentage points.

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