EURO ZONE CRISIS WON'T BE RESOLVED BEFORE CHRISTMAS - As the euro zone crisis shows no sign of abating, the borrowing rate for Spain rose to 5.57%, while Portugal's equivalent remained high at almost 7.2% yesterday. The gap between Spanish and benchmark German borrowing rates widened to three percentage points, an all-time high. The differential is a 'short-term fluctuation', Spain's deputy finance minister Jose Manuel Campa insisted. Spain's government has introduced politically sensitive measures aimed at reviving the economy and slashing its public deficit, including an overhaul of the country's rigid labour market rules. Italy too was under pressure today, with the spread between its 10-year rates and those of Germany widening to two percentage points for the first time. Italian bond yields jumped to 4.687%.
The head of economic, fixed income and currency research from the London office of Kleinwort Benson, Phyllis Reed, says that she believes Portugal will eventually have to take a bail-out. She says that even though the Portuguese politicians are saying no, she believes the European Union will push them to take help in the same way they pushed Ireland. Warning of a possible catastrophe, she says Portugal will be forced to take a bail-out to stop the pressure spreading to Spain. But she says that the bail-outs given to Greece and Ireland so far is not stopping the contagion.
Ms Reed says the break-up of the euro would be too costly, despite what some on the bond markets would like. But she adds that the cost of keeping the euro zone together is also very big and she says that the crisis will not be resolved before Christmas.
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MORNING BRIEFS - Ireland's manufacturing sector expanded for the second month in a row in November with the rate of growth picking up slightly as exports helped drive stronger output and new orders, a survey showed today. The NCB Purchasing Managers' Index, which measures Irish manufacturing activity, rose to 51.2 from 50.9 in October, above the 50 mark separating growth from contraction for the second month in a row and at the highest level since July.
*** On the currency markets, the euro is worth $1.3035 US cents and 83.69 pence sterling.
