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European Debt Crisis

European debt crisis spreads to the private sector

Stephen Beard Sep 4, 2012
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European Debt Crisis

European debt crisis spreads to the private sector

Stephen Beard Sep 4, 2012
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The European Debt Crisis is spreading into the private sector. Companies in some of the weaker eurozone economies are facing much higher borrowing costs.

The European Central Bank says small companies in Spain and Italy are getting squeezed. Their borrowing costs have soared. They are now roughly 50 percent higher than for their German counterparts.

It’s no mystery as to why this is happening. Spanish and Italian banks are in as much trouble as their governments. They’re struggling to raise funds and so they’re now demanding higher interest rates from their corporate customers, according to David Riley of Fitch Ratings. He said this could make it more likely that the euro will break up.

“This really does undercut part of the whole rationale for the euro and it highlights how financial flows and investment in the eurozone are actually fragmenting and actually pulling apart,” Riley said.

The new data could strengthen the hand of the European Central Bank as it plans to unveil controversial action to end the debt crisis. The Bank can now claim the survival of the euro could be at stake.

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