Europe’s Sovereign Debt Crisis Continued To Affect Financial Markets
A €110bn (US$140bn) aid package provided by the Euroland countries and the International Fund to avoid a default by Greece has failed to prevent bond yields from rising. This was despite Greece’s parliament yesterday approved the austerity measures demanded in return for the bailout and investors continued to sell down the euro and bonds of highdeficit economies, driving up borrowing costs for countries including Spain and Portugal and causing the US stock market to plunge. This suggests that investors remain skeptical over the rescue package given the slow response from the European governments and are hoping to see more actions being taken to address the issue. Indeed, if it fails to contain, the sovereign debt contagion may spread across Europe, affecting the banking systems of Portugal, Spain and Italy as well as Greece. As it stands, money markets showed banks may be more reluctant to lend to each other than at any time over the past six months and a derivatives index used to protect against European bank failures soared the most on record.
The World Economy... - 7/5/2010
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