News / Europe

European Debt Crisis Reverberates

From left to right, Italy's Prime Minister Silvio Berlusconi, Irish Prime Minister Brian Cowen, Greek Prime Minister George Papandreou and German Chancellor Angela Merkel share a word during an EU summit in Brussels, Dec 16, 2010
From left to right, Italy's Prime Minister Silvio Berlusconi, Irish Prime Minister Brian Cowen, Greek Prime Minister George Papandreou and German Chancellor Angela Merkel share a word during an EU summit in Brussels, Dec 16, 2010

The European debt crisis continued Thursday, with Spain paying more to finance its government and the continent's central bank acting to nearly double its reserves.

Earlier this week, Moody's Investors Service said it may lower Spain's credit rating less than three months after its last cut. Some financial experts fear that Spain will not be able to handle its debts and might need an international bailout. As a result, when Spain sold 10- and 15-year bonds, it was forced to pay higher interest rates than it did with earlier sales in the last two months.

Meanwhile, the European Central Bank said that for the first time in 12 years it would require its members - national banks - to add $6.7 billion to boost the central bank's reserves to $14.3 billion. The central bank has recently purchased $96 billion worth of European government bonds.

European Union leaders are meeting Thursday and Friday in Brussels to address the continent's debt crisis, which has already included international bailouts for Ireland and Greece. Some fear that Portugal and Spain might be the next countries to need help.

The leaders are expected to create a permanent system for handling financial crises that would take effect in 2013. They are at odds, though, about how best to cope with the disparate economic conditions across Europe, with debts and deficits in some countries, while Germany, France and other nations prosper.

German Chancellor Angela Merkel said the 27 nations in the European Union share the goal of a stable Europe with a stable currency, the euro, that 16 of the countries use. But she has been adamant in opposing an increase in the size of the $1 trillion bailout fund or creating pan-European bonds that would replace sovereign state bonds.

Germany has Europe's strongest economy but fears that continent-wide bonds would prove more costly for the country than selling its own.


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