- Associated Press - Thursday, February 16, 2012

LONDON — Mounting political tensions and frustration at a lack of resolution over whether Greece will get a vital bailout rekindled fears Thursday that Europe’s debt crisis could spread to other countries.

As stocks and the euro fell on Thursday, borrowing rates rose for Italy and Spain’s government debt — a sign that investors are worried that the two countries would be dragged back into a crisis that had shown some signs of easing.

Concern has crept into the markets that Greece could still be forced into a disorderly default on a vital €14.5 billion ($19 billion) bond repayment due next month. Despite answering concerns over its commitment to tough austerity measures, the country has yet to clinch deals with its international creditors for a bailout worth €130 billion ($170 billion) and an accompanying €100 billion ($131 billion) debt writedown agreed with its private bondholders.

Over the past few days, fears have grown that the bailout deal may be unraveling and on Wednesday relations between Greece and its partners in the eurozone hit a new low.

Greek Finance Minister Evangelos Venizolos told the country’s president, Karolos Papoulias, that there were “many in the eurozone who don’t want us any more”.

Meanwhile, Germany’s finance minister, Wolfgang Schaueble told German Suedwestrundfunk radio Wednesday: “They must understand in Greece that we want to do everything to help Greece — we see the great distress that people in Greece must bear because the political class in Greece has failed over years and decades, and I am not sure even now whether all in the political parties in Greece are aware of their responsibility for the difficult situation of their country.”

Investors Thursday appeared less than impressed with the clash between Greece and its European neighbors.

“Yesterday’s back and forth between Greek politicians and EU policymakers had all the hallmarks of an unedifying playground spat, with accusations and insults flying thick and fast,” said Michael Hewson, markets analyst at CMC Markets.

“Unfortunately there will be no winners or losers in this particular little saga as Europe gives the impression of gearing up to cut Greece loose, unless they subjugate to demands for new measures to sate various new concerns.”

Several politicians — especially in rich euro countries like Germany, the Netherlands and Finland — have grown tired of Greece repeatedly missing budget targets and failing to implement promised cuts, reforms and sales of state assets. There are also concerns that the second, €130 billion ($170 billion) bailout may not be enough to lift Greece out of its steep recession — its economy shrank 7 percent in the final quarter of 2011 from a year earlier.

Jean-Claude Juncker, the Luxembourg prime minister who also heads eurozone finance meetings, promised more clarity over Greece at another meeting of European finance ministers this Monday, when he said decisions will be made.

As uncertainty lingers, investors are reassessing their assumption that Greece will get the money, prompting big market movements Thursday. The Stoxx 50 index of leading European shares was down 0.5 percent while the euro slipped by the same rate to below $1.30.

Meanwhile, the yield on Italy’s ten-year bond has risen by 0.18 percentage points to 5.81 percent while Spain’s rate has risen another 0.05 percentage points to 5.44 percent, a little down from earlier. Italy is a particular worry because it is the eurozone’s third-largest economy and its debt mountain stands at around €1.9 trillion, way more than anything Europe has committed to its bailout facilities.

Though the rates of both countries are still down from the end of last year — when lack of confidence in Italy’s ability to pay its debt saw its yields bust the 7 percent mark while Spain hovered around 6.67 per cent — the increases have triggered concerns that Europe’s debt crisis is a long way from being solved.

The pressure on the two countries had eased in recent weeks, primarily because the European Central Bank offered unlimited amounts of super-cheap long-term loans to banks.

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