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Europe debt crisis worsens

Nov. 25, 2011 at 9:39 PM   |   Comments

ROME, Nov. 25 (UPI) -- Borrowing costs rose Friday for European governments, and financial analysts said the development increases the risk of collapse for Europe's common currency.

The interest rate on 10-year loans for Italy rose Friday for a fifth consecutive day, hitting 7.23 percent. The increase -- from 6.64 percent a week ago -- resulted from weak demand at an auction of new bonds, driving Italy's rate for two-year loans up to 7.5 percent, The Washington Post reported.

European Finance Commissioner Olli Rehn had told members of the Italian Parliament the goal of overcoming the country's financial woes is achievable, but Italy faces and uphill struggle.

"As well as budget consolidation, ambitious measures are needed to relaunch growth, ensuring social equity," he said, ANSA reported Friday.

Italy's deficit is widely reported to be 120 percent of the country's gross domestic product. Nevertheless, Rehn said Italy's goal of returning to fiscal balance was "attainable."

Even European nations considered to have relatively sound finances are being hit with higher borrowing costs. Standard & Poor's Friday cut its long-term credit rating for Belgium to AA from AA+, saying there is a possibility Belgian finances could be adversely affected by a need for bank bailouts, the Post reported.

France, Austria and Finland have experienced significant increases recently in their borrowing costs, and investors have been selling off almost all European government bonds.

Piero Ghezzi, an economist at Barclays Capital, said "it appears Europe's fiscally stronger sovereigns are reaching their limits in terms of supporting their fiscally weaker counterparts."

Topics: Olli Rehn
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