Europe's worst hour since 2nd World War, says Angela Merkel
German Chancellor Angela Merkel said today that Europe could be living through its toughest hour since World War Two as new leaders in Italy and Greece rushed to form governments and limit the damage from the euro zone debt crisis.
Financial markets today took heart from the fact that a key Italian bond auction drew decent demand from investors and hopes that new leaders in Greece and Italy would take decisive action to breathe new life into their sick economies.
"Europe is in one of its toughest, perhaps the toughest hour since World War Two," Merkel told her conservative party in Leipzig, saying she feared Europe would fail if the euro failed and vowing to do anything to stop this from happening.
But in a one-hour address to the Christian Democrats (CDU), Merkel offered no new ideas for resolving the crisis that has forced bailouts of Greece, Ireland and Portugal, and has raised fears about the survival of the 17-state currency zone.
"If the euro fails then Europe fails, and we want to prevent and we will prevent this, this is what we are working for, because it is such a huge historical project," Merkel said in the east German city of Leipzig.
In high drama in Rome, the president of Italy asked former European commissioner Mario Monti yesterday to form a government to restore market confidence in an economy whose debt burden is too big for the euro bloc to bail out.
There was some respite for the euro this morning after the Italian Treasury paid a record 6.29 per cent yield to sell five-year government bonds in the first auction held after Monti was asked to head an emergency government.
Italy, which last week saw its borrowing costs rise sharply past the 7 per cent level that has triggered international bailouts of Ireland and Portugal, sold the maximum targeted amount of 3 billion euros.
The European Central Bank began buying Italian government bonds as yields rose in the wake of the bond auction.
The appointments of Monti and Greece's new prime minister, Lucas Papademos, were greeted with optimism by the money men and European shares recovered slightly in choppy trade but caution was ingrained and hard to erase.
"Although there is some progress in both Italy and Greece, there are still a lot of concerns, prompting investors to cash in on early gains," said Joshua Raymond, chief market strategist at City Index, highlighting the deep-seated concerns.
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