Debt crisis sweeps towards heart of Europe
The euro zone’s debt crisis swept closer to the heart of Europe despite a clear-cut election victory in Spain for conservatives committed to austerity, adding to pressure on the European Central Bank to act more decisively.
Spain’s Socialists became the fifth government in the 17-nation currency area to be toppled by the sovereign debt crisis this year. Portugal, Ireland, Italy and Greece went before, while Slovakia’s cabinet lost a confidence vote last month and faces a general election in March.
An absolute parliamentary majority for Mariano Rajoy’s centre-right Popular Party brought no respite on financial markets increasingly alarmed by the absence of an effective firewall to halt a meltdown on sovereign bond markets.
Rajoy kept investors, and Spaniards, guessing about his plans to tackle the crisis, saying the constitution will make him wait until just before Dec. 25 to name an economy minister and explain how he will get five million people back to work.
The risk premiums on Spanish, Italian, French and Belgian government bonds rose as investors fled to safe-haven German Bunds, while European shares fell more than 3 percent after Moody’s warned that France’s credit rating faced new dangers.
“This crisis is hitting the core of the euro zone. We should have no illusions about this,” European Economic and Monetary Affairs Commissioner Olli Rehn said.
He defended the European Union executive’s advocacy of austerity policies blamed for choking off growth and jobs.
“One simply cannot build a growth strategy on accumulating more debt, when the capacity to service the current debt is questioned by the markets,” Rehn told a Brussels seminar. “One cannot force foreign creditors to lend more money, if they don’t have the confidence to do it.”
Greece’s new technocrat prime minister, Lucas Papademos, on his maiden trip to Brussels, won an assurance that euro zone finance ministers should be in a position to agree at their next meeting, next Monday, to disburse vital bailout funds to avert bankruptcy.