Eurozone Market Tensions Re-Emerge Amid Economic Growth Fears

Author: Market News International | Category: News

By Jack Duffy

PARIS (MNI) – Market tensions re-emerged in the Eurozone on Monday
as yields on peripheral country bonds rose and banks stocks tumbled amid
fears that economic growth across the 17-nation block has stalled.

As leaders of the Group of 20 countries prepare to meet in Cannes
this week, the optimism that followed the Eurozone summit in Brussels
last week continues to fade. Italian 10-year bond yields climbed to a
high 6.18%, while rates on Spanish 10-year debt rose to 5.63%, despite
reported purchases by the European Central Bank.

Amid a raft of bleak economic reports, the Organization for
Economic Cooperation and Development said Monday that growth in the
Eurozone was likely to slow to 0.3% next year from an expected 1.6% this
year. It said the outlook could be worse if measures announced at last
week’s Brussels summit were not quickly implemented.

The Bank of Spain said there was no growth in the Spanish economy
in the third quarter and suggested the government would not meet its 6%
deficit target for this year. Unemployment in the Eurozone, meanwhile,
climbed to 10.2%, the highest rate in 15 months.

European stock markets slumped, led by French bank shares. The
three major French banks, Societe Generale, BNP Paribas and Credit
Agricole were all down by around 7%.

Economists said that with tough austerity programs now planned or
in place in Greece, Italy, France, Spain and Portugal, the downward
pressure on economic activity will only increase. And weakening
economies will make it more difficult for governments to reach their
deficit targets and to sustain their debt loans.

“If everyone is tightening their belt, it’s tough to see where
growth will come from,” said Peter Vanden Houte, an economist at Ing
Group in Brussels. “And without growth, most countries will be unable to
cut their deficits further.”

Fears over how Eurozone countries will manage their debt and
deficits have already begun to push borrowing costs higher. Italy paid
6.06% to sell 10-year bonds last week, the highest since it joined the
euro. Belgium sold 10-year bonds on Monday at 4.37%, up more than 60
basis points from a month ago.

In its report, the OECD called on central banks, including the ECB,
to lower interest rates and to maintain “unconventional measures” to
pump liquidity in their economies. It also called on G20 leaders to
adopt “mutually reinforcing macroeconomic policies and structural
reforms” to boost global growth.

“In 2008, G20 leaders rose to the challenge with a clear and
coherent plan and we avoided a second Great Depression,” the OECD
reminded. “Today, the adoption and implementation of (an) action plan is
just as imperative to restore confidence through decisive actions.”

At a press conference, the OECD Secretary-General Angel Gurria
called the organization’s forecasts “a mirror, a message and a signal”
to G20 leaders of where the global economy is headed unless policies to
restore growth are not quickly adopted.

— Paris bureau: +331-4271-5540; jduffy@marketnews.com

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