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.

News
people'It can last and it's terrifying'
Sport
Radamel Falcao
footballManchester United agree loan deal for Monaco striker Falcao
Sport
Louis van Gaal, Radamel Falcao, Arturo Vidal, Mats Hummels and Javier Hernandez
footballFalcao, Hernandez, Welbeck and every deal live as it happens
Sport
footballFeaturing Bart Simpson
PROMOTED VIDEO
News
Kelly Brook
peopleA spokesperson said the support group was 'extremely disappointed'
News
i100
Life and Style
techIf those brochure kitchens look a little too perfect to be true, well, that’s probably because they are
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
News
news Video - hailed as 'most original' since Benedict Cumberbatch's
Arts and Entertainment
booksNovelist takes aim at Orwell's rules for writing plain English
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Head of IT (Windows, Server, VMware, SAN, Fidessa, Equities)

£85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...

Technical Software Consultant (Excel, VBA, SQL, JAVA, Oracle)

£40000 - £50000 per annum: Harrington Starr: You will not be expected to hav...

SQL DBA/Developer

£500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Data Warehousi...

.NET Developer

£650 per day: Harrington Starr: .NET Developer C#, Win Forms, WPF, WCF, MVVM,...

Day In a Page

Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
Fashion walks away from the celebrity runway show

Fashion walks away from the celebrity runway show

As the collections start, fashion editor Alexander Fury finds video and the internet are proving more attractive
Meet the stars of TV's Wolf Hall... and it's not the cast of the Tudor trilogy

Meet the stars of TV's Wolf Hall...

... and it's not the cast of the Tudor trilogy
Weekend at the Asylum: Europe's biggest steampunk convention heads to Lincoln

Europe's biggest steampunk convention

Jake Wallis Simons discovers how Victorian ray guns and the martial art of biscuit dunking are precisely what the 21st century needs
Don't swallow the tripe – a user's guide to weasel words

Don't swallow the tripe – a user's guide to weasel words

Lying is dangerous and unnecessary. A new book explains the strategies needed to avoid it. John Rentoul on the art of 'uncommunication'
Daddy, who was Richard Attenborough? Was the beloved thespian the last of the cross-generation stars?

Daddy, who was Richard Attenborough?

The atomisation of culture means that few of those we regard as stars are universally loved any more, says DJ Taylor