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European Debt Crisis

Is the euro’s death approaching?

Stephen Beard Nov 25, 2011

Tess Vigeland: Another day, another development in the eurozone debt crisis. And you probably won’t be surpised to learn it’s not good news. The credit rating agency S&P has downgraded Belgium. Even more worrying: Italy saw its borrowing costs skyrocket. And a senior British official called on banks in the United Kingdom to prepare for the possible break-up of the euro.

From London, Marketplace’s Stephen Beard reports.

Stephen Beard: Italy’s squeaky clean new government is committed to cleaning up its finances. So when it sold some of its bonds today, it may have been hoping for a round of applause from the markets. It didn’t get one. Investors instead demanded the highest rate of interest — or yield — on Italian bonds in more than a decade.

Marc Ostwald is a bond expert with Monument Securities.

Marc Ostwald: The market’s saying, well, we’re going to carry on pushing these yields higher and higher and higher until someone actually does something.

Investors know that Italy, with $2.6 trillion worth of debt, is too big for Europe to bail out. The existing bailout fund has only $350 billion left in it. And Raoul Ruparel of the Open Europe think-tank says a plan to persuade China and others to put money into that fund has come to nothing.

Raoul Ruparel: It’s really not clear to countries such as China or sovereign wealth funds around the world what they would be investing in.

Germany hasn’t helped. It has refused to allow the European Central Bank to print money and prop up Italian and other eurozone bonds. The end of the euro in its current form could be approaching. Britain’s main financial regulator has told British banks to prepare for the possibility that the euro might break up.

Jeremy Warner is economics commentator at The Daily Telegraph.

Jeremy Warner: It means that people are beginning now to take very seriously the possibility of a disorderly unwinding of the euro.

Beard: The death of the currency?

Warner: The death of the currency, yes.

Although he concedes that others have predicted the euro’s demise and yet — for now — the currency staggers on.

In London, I’m Stephen Beard for Marketplace.

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