euro zone's debt crisis swept closer to the heart of Europe

 

euro zone's debt crisis swept closer to the heart of Europe despite a clear-cut election victory in Spain for conservatives committed to austerity, adding to pressure on the European Central Bank to act more decisively. Spain's Socialists became the fifth government in the 17-nation currency area to be toppled by the sovereign debt crisis this year. Portugal, Ireland, Italy and Greece went before, while Slovakia's cabinet lost a confidence vote last month and faces a general election in March. An absolute parliamentary majority for Mariano Rajoy's centre-right Popular Party brought no respite on financial markets increasingly alarmed by the absence of an effective firewall to halt a meltdown on sovereign bond markets. Rajoy kept investors, and Spaniards, guessing about his plans to tackle the crisis, saying the constitution will make him wait until just before Dec. 25 to name an economy minister and explain how he will get five million people back to work. The risk premiums on Spanish, Italian, French and Belgian government bonds rose as investors fled to safe-haven German Bunds, while European shares fell more than 3 percent after Moody's warned that France's credit rating faced new dangers. "This crisis is hitting the core of the euro zone. We should have no illusions about this," European Economic and Monetary Affairs Commissioner Olli Rehn said. He defended the European Union executive's advocacy of austerity policies blamed for choking off growth and jobs. "One simply cannot build a growth strategy on accumulating more debt, when the capacity to service the current debt is questioned by the markets," Rehn told a Brussels seminar. "One cannot force foreign creditors to lend more money, if they don't have the confidence to do it." Greece's new technocrat prime minister, Lucas Papademos, on his maiden trip to Brussels, won an assurance that euro zone finance ministers should be in a position to agree at their next meeting, next Monday, to disburse vital bailout funds to avert bankruptcy. Papademos was expected to meet European Central Bank chief Mario Draghi on Tuesday evening in Frankfurt. Borrowing costs for both Spain and Italy hit levels regarded as unsustainable last week before the European Central Bank stepped in temporarily to steady the market. Two newspapers said the ECB's governing council had imposed a weekly limit of 20 billion euros on purchases of euro zone government bonds, a figure analysts say prevents it wielding massive deterrent power in the markets. Germany's central bank has led resistance to the bond-buying it sees as inflationary. The latest weekly figures released on Monday showed the central bank bought nearly 8 billion euros in the week to last Wednesday, far below that reported limit in a week when Italian and French spreads hit euro era highs. Critics say this reluctant, piecemeal approach is aggravating the situation rather than restoring confidence. ECB governing council member Ewald Nowotny, regarded as a dove, told a conference in Vienna that the central bank could not simply start printing money but would have to discuss its next response to the crisis. "What we certainly have to discuss is what is a role for the ECB in these difficult times, but this is also something we will discuss in Frankfurt at the appropriate time," he said.