Debt crisis in Europe: Worries grow of spread to larger economies of Italy, Spain

By Anthony Faiola,
WashPost
Published: August 3

LONDON — Fears mounted Wednesday that Europe’s debt crisis is reaching a critical tipping point, spreading from Greece, Ireland and Portugal to the larger economies of Italy and Spain.

The deepening woes raised the prospect of a crisis that would be almost as calamitous for the global economy as the one just avoided in Washington.

Investors drove borrowing costs for Italy and Spain to 14-year highs, fueling sharp stock market drops in London, Frankfurt, Paris, Milan and Madrid. Though Italian and Spanish bonds later rebounded, borrowing rates for both nations remained dangerously high, at more than 6 percent — and closing in on the 7 percent threshold that eventually triggered bailout talks with Greece, Ireland and Portugal.

Concern on Wednesday focused on Italy, whose sheer size — it is the world’s seventh-largest economy — makes it potentially too big to bail out and would require radical new steps from already reluctant European leaders and the European Central Bank to prevent a full-blown crisis there. The day also saw volatile trading in the bonds of Belgium and even France as fears grew that Europe may be forced into a costly rethink of how to preserve its common currency, the euro.

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