Newspaper article The Evening Standard (London, England)

Now Belgium Feels the Heat of Contagion in Eurozone

Newspaper article The Evening Standard (London, England)

Now Belgium Feels the Heat of Contagion in Eurozone

Article excerpt

Byline: Nick Goodway

SPANISH and Portuguese bond yields and the cost of insuring against defaults on these hit record highs today, amid growing fears the Irish debt crisis will spill over into the rest of the eurozone.

Irish Taoiseach Brian Cowen confirmed the country is negotiating an [euro]85 billion ([pounds sterling]71 billion) bailout loan from the International Monetary Fund and Europe.

For the first time a northern European country -- Belgium -- was caught up in contagion fears and became the focus of speculators' frenzy, as its fiveyear credit default swap, which measures investors' fears over it possibly defaulting, hit a new high.

UK bank shares came under pressure on worries that their exposure to Spain and Portugual could force them to make major write-downs on bad loans.

Barclays, which analysts say has around [pounds sterling]40 billion of exposure to the Iberian peninsular, led the fallers with its share price dropping 2.9p to 261.3p -- its lowest level since July.

In Portugal, a nationwide, general against planned austerity cuts saw the country grind to a halt. British Airways and Ryanair cancelled flights to Portugal while the country's flag carrier TAP was effectively grounded.

The yield on Portuguese bonds rose above 7% for the first time, while Spanish bond yields rose from 4.91% to 5.08%. The euro weakened against all major currencies falling 0.27p to 84.45p against sterling.

As the Irish government unveiled its [euro]15 billion cost-cutting budget, yields on its bonds rose another 29 basis points to 8.94%.

"The barbarians are at the gate," said David Begg, head of the Irish Congress of Trade Unions. "It appears the day of reckoning has arrived."

Traders in the City said there fears the Irish bailout might not be enough.

"Even though the government has committed itself to reducing the budget deficit over the medium term, the market doesn't believe its growth forecasts beyond 2011 are credible," said Nick Stamenkovic, strategist at RIA Capital Markets in Edinburgh. …

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