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November 30, 2010    

Contagion fears hit Italy and Belgium

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by Kay Murchie
Contagion fears hit Italy and Belgium

Fears have been mounting for Spain and Portugal over recent days as borrowing costs surge but spreads on Italian and Belgian bonds have now risen as Ireland’s bailout does little to reassure the markets.

The euro continues to slide, hitting a two-month low of $1.31, while London’s FTSE dived nearly 118 points to 5,550.

Nick Matthews, a credit expert at RBS, told The Telegraph: “The crisis is intensifying and worsening.”

While there has been speculation that Portugal could be next in line for a bailout as yields on 10-year bonds rise to dangerous levels, bailing out Spain and Italy would require much larger sums, according to analysts.

The Spanish economy accounts for 12% of economic output among the 16-member bloc – equivalent to twice that of Ireland, Portugal and Greece combined.

According to Charles Dumas from Lombard Street Research, the EU rescue fund could not handle Italy either, while some investors have described Spain and Italy as “too big to fail”.

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