European markets registered gains on Friday, apparently reassured by German Chancellor Angela Merkel's backing of the European Central Bank (ECB) in its insistence that troubled eurozone countries will not receive unconditional aid.
By late morning, the blue-chip Eurostoxx 50 had risen by 0.35 per
cent to 2,465, while the euro was up 0.06 per cent to 1.2363 dollars.
Borrowing costs for Spain and Italy were also falling, after
having maintained pressure on the crisis-battered countries for weeks
- raising fears of them needing full international bailouts.
The interest for Spanish 10-year bonds stood at 6.5 per cent,
three weeks after soaring to a record of over 7.7 per cent. The risk
differential with benchmark German bonds fell to 497 basis points. It
had remained above 500 basis points from July 4 until Thursday.
Italy, meanwhile, saw its interest for 10-year-bonds fall to just
below 5.8 per cent, three weeks after reaching 6.6 per cent.
Speculation has been rife that Spain is poised to ask for the
first funds from its bank bailout, and for the eurozone's bailout
fund and the ECB to buy its bonds to further reassure markets.
Madrid has not ruled out either, but has yet to make such moves.
ECB chief Mario Draghi has indicated that the central bank will
not get involved unless any government needing help first turns to
the bailout fund - thus having to agree on to strict conditions in
return.
Countries receiving help would have to "pursue sound budgetary
policies, adopt structural reforms for growth and employment, and
address macroeconomic imbalances," EU Economy Commissioner Olli Rehn
said this week while in the United States.
During a separate trip to Canada, Merkel was asked on Thursday
about Draghi's statements.
She responded that recent decisions "have made it clear that the
ECB is counting on political action in the form of conditionality as
the precondition for a positive development of the euro."
She also reiterated that eurozone officials are committed to
saving their common currency.
Finland's foreign minister displayed less optimism, however,
telling the Daily Telegraph newspaper that there was a need to "face
openly the possibility of a euro break-up."
While insisting that no one in Finland is advocating such a
scenario, Erkki Tuomioja went on to say that "it could make the EU
function better" - predicting that the break-up of the 17-member
currency bloc would not spell the end of the wider 27-member union.
However, there is "a consensus that a eurozone break-up would cost
more in the short-run or medium-run than managing the crisis,"
Tuomioja added.
Finland has found itself at odds with other euro countries several
times during the currency bloc's debt crisis, most recently in July
when it was joined by the Netherlands in appearing to backtrack on
crisis-fighting measures agreed at a high-profile summit.
