France and Spain next in firing line as markets up pressure
Published 10/11/2011 | 05:00
The immediate focus for the eurozone debt crisis comes today when Italy must raise fresh funds in the market, but political events will take centre stage more long term.
Spain and France look set to be next in line for market pressure -- with both countries facing elections.
Today Italy will attempt to borrow new money and we will find out if markets are prepared to lend to the country, with or without Prime Minister Silvio Berlusconi.
Italy will be able to auction government bonds today despite the crisis, but only because big banks have lined up to sell the bonds on to the ECB straight away.
But more long term, French President Nicolas Sarkozy is set to be the next victim of the debt crisis, but France should escape the stigma of a bailout.
The brutal ousting of two prime ministers in less than a week is unprecedented in post-war Europe -- it means the European political scene, as well as the markets, has been thrown into total chaos.
Everyone wants to know where the next pressure point is and France and Spain are closest to the danger zone.
Spain is smaller and weaker in many ways, but in the markets all eyes seem to be on France -- and the country is already feeling the heat.
In the markets investors are already betting against the euro's second biggest economy, placing big wagers that French bonds will fall in value this year -- forcing up borrowing costs.
France is in their sights because banks there have been doing huge amounts of business in Italy and Greece for years.
The banks are on the hook for a staggering €416bn in loans to Italy, as well as being the biggest lenders to Greece.
France will not be forced out of the markets, however. Its government finances are in much better shape that Italy's, and the country has more clout in Europe.