Fears of Ireland, Portugal and Spain getting dangerously close to bankruptcy are spiking, as speculation rises that one or more of these states might make an appeal for international bailout.
In particular, Irish bonds have taken hard blows over the recent days, among fears of its financial problems becoming critical.
A plan supported by Germany is likely to produce losses for holders of bonds issued in by financially troubles states. Germany’s argument in the plan was that investors and states should share the losses. As a result, investors have moved to dump Ireland bonds, in an attempt to prevent higher losses. A similar situation has been unfolding in Portugal. Both countries are attempting to refuel their economies, while also cutting back on spending.
For larger economies, such as Italy and Spain, fears of fast declining financial stability lead to increasing borrowing rates. While Spain is facing massive budget deficit, Italy is heavily indebted.
A G-20 issued policy stated that the commitment of investors sharing the burden of troubled states will be voluntary, and not a requirement. Furthermore, the policy would become effective in 2013. The policy prompted a slight decrease in bond pressure in several states.
However, Irish and Portuguese bonds have suffered negative effects and analysts say that markets might be pricing a default on some of their obligation. Should that happen, the euro might see its value decrease further, prompting financially troubled states to revive debates on readopting national currencies and dropping a weakened and unstable euro. Ideas of quitting the euro could find strong support, especially in the light of lower than predicted economic growth for the euro zone, as shown by Eurostat figures only days ago.
