The cost of insuring German bonds rose Tuesday, an early symptom of distrust of investing in Europe's healthiest economy.
Germany defaulting on its debt is considered extremely unlikely, but even the remote possibility shows in the simplest form how hard it is to compartmentalize fears in a 16-nation block that share a common currency.
Investors, The New York Times reported Wednesday, are selling German debt on fears the European Union will soon bail out Portugal and Spain, which pulls Italy closer to the maelstrom. By all accounts, the deals assembled for Greece and Ireland, at a cost of $260 billion so far, will be dwarfed by efforts to shore up Spain where unemployment exceeds 20 percent.
Spain alone exemplifies the fear factor. Most banks turn away customers asking for a loan when they are unemployed. Even with Spanish banks in
relatively strong shape, a loan to Spain includes ominous portent even if the current fund set up by the European Union could probably handle the
bailout itself. The funds are lined up, at least for this year, The Wall Street Journal reported Wednesday.
And just around the corner is Italy, Europe's third largest economy.
Obviously, this year's loan to Spain, should it come about, could be next year's default. Loans to countries with shrinking economies or high
unemployment and the EU's hesitation to hold bondholders accountable has provided immediate relief politically, but not much more.
As borrowing became more expensive, Ireland eventually concluded that a $90 billion 10-year bailout at an average of 5.8 percent was a better deal than bond markets had to offer. But the deal also comes with a tough austerity budget and, so far, a weaker currency, the euro reaching a 10-week low at $1.3011 Tuesday.
The loans, some say, are a delay tactic making more political than fiscal sense.
Germany has suggested bond holders take some of the losses, but for others that approach treads on sacred ground. A government bond that goes back on its promise is a tough pill to swallow and governments fear it will would be impossible to raise a dime if they go down that road at all.
In international markets Wednesday, the Nikkei 225 index in Japan rose 0.51 percent while the Shanghai composite index in China added 0.12 percent. The Hang Seng index in Hong Kong added 1.05 percent while the Sensex in India gained 1.68 percent.
The S&P/ASX 200 in Australia rose 0.05 percent.
In midday trading in Europe, the FTSE 100 index in Britain added 1.74 percent while the DAX 30 in Germany gained 2.16 percent. The CAC 40 in
France climbed 1.37 percent while the Stoxx Europe 600 added 1.55 percent.