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Friday, 11 November 2011

Eurozone still crisis as markets calmer after volatile week

Eurozone still crisis as markets calmer after volatile week

Financial markets were calmer on today Friday 11/11/11 after a week of extreme stress due to the continuing Eurozone debt crisis.

The cost of borrowing in Italy retreated, having reached a record, while German and French stocks were up.

Italy is poised to vote on austerity measures, while the new Greek prime minister pledged to keep the country in the euro.

Investors are hopeful that the new governments will take the steps necessary to halt the crisis.

In the UK, the FTSE 100 share index rose 0.9%.

Growth fears

In a dramatic week, Italy's Prime Minister Silvio Berlusconi on Tuesday said that he planned to resign after failing to win an absolute majority in the lower house of parliament in a vote on the budget.
To be clear, unlike Italy's bond yields of nearer 7%, the rise in French funding costs does not put it on the critical list”

At which Portugal, Greece and the Irish Republic were forced to seek a bailout.

On Friday, the yield on the benchmark Italian 10-year bond had fallen back to around 6.55%.

Italy has to roll over more than 360bn euros (£309bn) of debt in 2012.

The Italian senate is set to pass a vote on austerity measures, with the lower house voting at the weekend and, afterwards, Mr Berlusconi will probably resign.

But all this came as the European Union on Thursday said it had drastically cut its growth forecast for the Eurozone in 2012, from 1.8% down to just 0.5%.

"Growth has stalled in Europe and there is a risk of a new recession," said European Commissioner Olli Rehn.

French debt woes

In a sign of how strained European finances have become, Standard & Poor's accidentally released a message on Thursday saying that it had downgraded French debt from its top AAA rating.

S&P said it was investigating what had gone wrong and stressed that France still had an AAA rating.

However, S&P's error came on the day that the difference between the yield of French and German bonds hit a record high.

On Friday, German 10-year bonds - the safest in Europe - yielded 1.79% and the equivalent French debt was 3.36%.

Meanwhile, Greece, which has been bailed out twice and is undergoing painful austerity cuts, has a new Prime Minister, Lucas Papademos.

Mr Papademos, a former European Central Bank vice-president, was named on Thursday after several days of talks.

He said his first priorities would be to ratify the 130bn-euro rescue package agreed at an EU summit last month.

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