Fear grips markets despite Greek reprieve

Spanish borrowing costs hit record high as early confidence drains away

Spanish and Italian bond yields shot up yesterday as market fears over the future of the eurozone came flooding back, swamping early relief over the weekend's election result in Greece.

Yields for 10-year bonds on debt issued by Madrid surged to their highest levels in the history of the single currency, touching 7.28 per cent, before falling back to 7.16 per cent. Italy's 10-year bond yields also jumped above 6 per cent, ending at 6.09 per cent. Yields above 7 per cent are widely believed to be unsustainable.

The yield spike prompted the Spanish Treasury minister, Cristobal Montoro, to call for capital market intervention from the European Central Bank.

Investors had drawn a sigh of relief at the Greek result, but stressed the underlying crisis had still not been solved.

"While Greek euro exit fears have eased, this outcome does little to alleviate the weak fundamentals that currently weigh on Spain and Italy," Michala Marcussen, of Socit G*rale, said.

Others said European policymakers were still doing too little.

"There is also no sign yet of the collective political will to take the tough decisions required to implement a long-term strategy to resolve the crisis," Mike Turner, the head of Global Strategy & Asset Allocation at Aberdeen Asset Management, said.

European leaders sent out conflicting signals over how they might respond to the latest downward lurch in the eurozone crisis. Ireland's state broadcaster reported that the European Union and the Internatioanl Monetary Fund are considering doubling the repayment term of Dublin's €85bn (£68bn) bailout, from 15 years to 30 years

Yet a suggestion from the German foreign minister, Guido Westerwelle, that Europe is preparing to relax the conditions of Greece's bailout in response to the election result, was swiftly denied.

Mr Westerwelle had told German radio that Greece's political standstill over the past month had inevitably thrown Athens' deficit reduction plans of schedule.

"We are ready to talk about the time frame as we can't ignore the lost weeks" he said.

But government sources in Berlin said the programme would not change. And this was reiterated by the German Chancellor, Angela Merkel, who insisted in Los Cabos Mexico, where G20 leaders are meeting, that there would be no loosening of Greece's reform conditions.

A leaked draft of the Mexico G20 communique, which showed leaders pledging to tackle budget deficits and restore growth failed to lift sentiment in the financial markets. The euro fell to $1.2560.

Asian stock markets had responded positively to the Greek election result, which seemed to raise the chances of the country remaining in the euro.

The Nikkei Index rose by 1.77 per cent and Hong Kong's Hang Seng by 1.01 per cent. But the rally did not continue in Europe, where Spain's Ibex shed 2.96 per cent, Italy's main equity index lost 2.85 per cent and France's CAC fell by 0.8 per cent.

Bank shares were the biggest losers. Spain's Bankia lost 9 per cent of its value, Germany's Commerzbank shed 3.6 per cent and France's BNP lost 3.3 per cent. The UK's Royal Bank of Scotland was down 4.97 per cent.

Commodities markets also fell in response to fears that that the unresolved eurozone crisis will undermine global demand for energy. Brent crude futures fell by $2, having bounced slightly overnight on the Greek result.

voicesGood for Lana Del Rey for helping kill that myth, writes Grace Dent
The University of California study monitored the reaction of 36 dogs
sciencePets' range of emotions revealed
Life and Style
fashion Designs are part of feminist art project by a British student
Arts and Entertainment
The nomination of 'The Wake' by Paul Kingsnorth has caused a stir
Arts and Entertainment
The Tour de France peloton rides over a bridge on the Grinton Moor, Yorkshire, earlier this month
Snoop Dogg pictured at The Hollywood Reporter Nominees' Night in February, 2013
people... says Snoop Dogg
Life and Style
food + drinkZebra meat is exotic and lean - but does it taste good?
Arts and Entertainment
Residents of Derby Road in Southampton oppose filming of Channel 4 documentary Immigration Street in their community
voicesSiobhan Norton on why she eventually changed her mind
ebookA unique anthology of reporting and analysis of a crucial period of history
Scottish singer Susan Boyle will perform at the Commonwealth Games opening ceremony in Glasgow
commonwealth games
Arts and Entertainment
Dwayne 'The Rock' Johnson stars in Hercules
filmReview: The Rock is a muscular Davy Crockett in this preposterous film, says Geoffrey Macnab
Life and Style
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

PMO Analyst - London - Banking - £350 - £400

£350 - £400 per day: Orgtel: PMO Analyst - Banking - London - £350 -£400 per d...

Cost Reporting-MI Packs-Edinburgh-Bank-£350/day

£300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...

Insight Analyst – Permanent – Up to £40k – North London

£35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...

Test Lead - London - Investment Banking

£475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...

Day In a Page

Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Climate change threatens to make the antarctic fur seal extinct

Take a good look while you can

How climate change could wipe out this seal
Man Booker Prize 2014 longlist: Crowdfunded novel nominated for first time

Crowdfunded novel nominated for Booker Prize

Paul Kingsnorth's 'The Wake' is in contention for the prestigious award
Tour de France effect brings Hollywood blockbusters to Yorkshire

Tour de France effect brings Hollywood blockbusters to Yorkshire

A $25m thriller starring Sam Worthington to be made in God's Own Country
Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

Noel Fielding's 'Luxury Comedy'

A land of the outright bizarre
What are the worst 'Word Crimes'?

What are the worst 'Word Crimes'?

‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
Can Secret Cinema sell 80,000 'Back to the Future' tickets?

The worst kept secret in cinema

A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Facebook: The new hatched, matched and dispatched

The new hatched, matched and dispatched

Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
Why do we have blood types?

Are you my type?

All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
Honesty box hotels: You decide how much you pay

Honesty box hotels

Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

Michael Jamieson: Why weight of pressure rests easy on his shoulders

The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it