THE TELEGRAPH: Europe's debt markets are flashing danger signals after spreads on Iberian debt reached the highest level since the launch of the euro and investors rushed for safety into German notes, prompting warnings from German Chancellor Angela Merkel that the European Project itself is at risk.
"Contagion pressures continue to rage unabated," said Marco Annunziata, Europe economist at UniCredit. "The flames have rushed through the firewall of the IMF/EU programme for Greece and now threaten other peripheral countries."
"While the sell-off on sovereign bond markets so far remains discriminating, the risk that it might suddenly mutate into irrational panic can no longer be ignored. Eurozone policymakers need to take further steps quickly," he said.
Mrs Merkel made a moving plea to the Bundestag to support the €110bn (£93bn) rescue for Greece. "Nothing less than the future of Europe is at stake. The happy tale of German history since World War Two and our emergence as a free, united, and strong country cannot be separated from the European Union. We owe decades of peace and prosperity to the understanding of our neighbours," she said.
"Europe today is looking to Germany. As the strongest economy in Europe, Germany has a special responsibility and it takes this responsibility to heart.
"Immediate help is needed to ensure the financial stability of the eurozone. This must be done to avoid a chain-reaction to the European and international financial system, and contagion to other eurozone states. There is no alternative."
Belated support from Berlin has failed to stop the crisis escalating. Spreads on Portuguese 10-year bonds soared to a post-EMU record of 290 basis points above Bunds; Spanish spreads rose to 131. Bank shares in Madrid slid again, with falls of 4.9pc for Banco Popular, 3.6pc for BBVA, and 2.5pc for Santander[.]
Bundesbank chief Axel Weber said there was a "grave threat of contagion", echoing the formula now being used by German officials to justify the rescue. Berlin hopes the wording will head off a legal challenge at the constititional court. >>> Ambrose Evans-Pritchard, International Business Editor | Wednesday, May 05, 2010
