| Advertisement |
Italy's Prime Minister Mario Monti, as expected, assembled a cabinet stacked with technocrats, who must now stare down a chaotic bond market. Yields on Italian 10-year bonds rose, climbing toward 7 percent Thursday, well beyond a sustainable level.
Advertisement
In France, borrowing costs are also rising, giving rise to a split between Germany and France on the political scene. Germany has been arguing that a combination of tough fiscal discipline and limited intervention by the European Central Bank would seal off Europe's debt contagion. France, however, is breaking away from that strategy, urging the European Central Bank to start bailing faster.
On Thursday, benchmark Italian bonds yields hit 7.01 percent, while comparable Spanish bonds reached 6.6 percent on the secondary market. In France, 10-year government bonds yielded 3.76 percent, while Germany's 10-year notes cost the government 1.77 percent.
"But Germany, for historic reasons, has closed the door to the direct involvement of the ECB," said French Finance Minister Francois Baroin.
The New York Times said analysts are keeping an eye on the yield spread -- the difference between Germany's 10-year notes and comparable debt around the continent -- which may dictate policy shifts. Other northern European countries, like the Netherlands and Austria, are likely to pick up on France's call to arms should yield spreads continue to grow.
Eurostat this week said that the gross domestic product in the Netherlands fell 0.3 percent in the third quarter after a marginal rise of 0.2 percent in the second. In France, the GDP rose 0.4 percent after falling 0.1 percent in the second quarter.
Germany's GDP rose 0.5 percent July through September, after a 0.3 percent climb in the second quarter, its worst performance out of the most recent four quarters.
"The Germans have been able to rely on the French, the Dutch and the Austrians. But if they get dragged into this and their borrowing costs continue to rise, that could influence whether they continue to back Germany and the line taken on the euro zone crisis," said Chief Economist Simon Tilford at the Center for European Reform in London.
Combined with a warning from Fitch that U.S. banks were vulnerable to Europe's woes, the issues pressured stocks Wednesday, turning a wobbly performance into a fast fall. The Dow Jones industrial average dropped 190 points on the day. The Standard & Poor's index shed 20 points after Fitch said, "unless the euro zone debt crisis is resolved in a timely and orderly manner, the broad outlook for U.S. banks will darken."
Germany, of course, has been relying on more than France, Austria and the Netherlands. It has also been banking on economic growth and if that shifts, so will policy. Sometimes it seems a forgotten concept, but economic growth, when all is said and done, is the the cheapest solution of them all.
In international markets Thursday, the Nikkei 225 index in Japan rose 0.19 percent, while the Shanghai composite index in China dropped 0.16 percent. The Hang Seng index in Hong Kong gave up 0.76 percent, while the Sensex in India fell 1.87 percent.
In Australia, the S&P/ASX 200 index rose 0.25 percent.
In midday trading in Europe, the FTSE 100 index in London plunged 2.03 percent, while the DAX 30 in Germany fell 1.32 percent. The CAC 40 in France dropped 1.35 percent, while the Stoxx Europe 600 index fell 1.39 percent.
