David Prosser: Central bank under cosh as eurozone worsens

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The Independent Online

Outlook Here we go again. Europe's political leaders were out banging the drum once more yesterday: Portugal is solvent, Spain does not need a bail-out and the rescue of Ireland should draw a line under the eurozone crisis. Did the markets get the message? Of course they didn't.

Day by day, confidence is draining from the eurozone as another country becomes infected by financial contagion. Portugal, for all its assertions of solvency, is now assumed to be in bail-out territory, while Spain is not far behind. And now Italy is under attack too.

The European Central Bank meets tomorrow to decide whether to pull back from plans to begin withdrawing some of the emergency support it has offered the eurozone's financial system. The answer has to be yes. For not only are yields on sovereign debt now moving higher, but so is the cost of debt for the corporate sector. Banks won't lend to eurozone companies and now bond investors are reluctant to do so either.

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