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The European Central Bank has abandoned Italy and Spain to their tortured fate.
Its refusal to act in the face of an existential threat to monetary union has set off violent tremors across the global financial system, raising the risk that the crisis will spiral out of control.
Bank shares crashed in Madrid and Milan, with Intesa Sanpaolo down 10pc and Italy's MIB index reduced to its knees with a one-day fall of 5.2pc. Share trading was suspended at a string of bourses across Europe.
Yields on 10-day US debt fell to zero in a replay of panic flight to safety seen during the onset of the Lehman-AIG crisis three years ago. ...
Mr Buiter said Europe risks a disastrous chain of events and the worst financial collapse since the onset of the Great Depression unless Europe's central bank steps in with sufficient muscle to back-stop the system.
"The ECB has yet so show it understands that it is the only institution that can save Italy and Spain from fundamentally unwarranted defaults. Everybody is afraid and real money investors are dumping their holdings. The ECB must step in to cap the yields at 6pc or 6.5pc and put a floor under the market," he said.
Eurozone countries are failing to stop the “contagion” of the debt crisis, the President of the European Commission warned yesterday.
José Manuel Barroso’s warning came as stock markets plunged around the world amid growing fears of another global recession.
Mr Barroso called for an emergency strengthening of Europe’s bail-out mechanism. He said he had “deep concerns” about the faltering Spanish and Italian economies.
European Commission President Jose Manuel Barroso has warned that the eurozone sovereign debt crisis is spreading from the smaller debt-laden nations to Italy and Spain, the currency area's third- and fourth-largest economies.
he head of the European Commission urged the 27 European Union leaders to begin a "rapid reassessment" of the bloc's rescue mechanisms.
He said governments should rapidly review "all elements" including the size of the €440bn European Financial Stability Fund (EFSF) and the €500bn European Stability Mechanism to "address the current contagion" in the eurozone.
"It is clear that we are no longer managing a crisis just in the euro-area periphery," he said, adding that markets remain to be convinced that the EU is taking the appropriate steps to resolve the crisis. ...
Investors have pushed yields on benchmark Italian and Spanish government bond to 14-year highs, reflecting "a growing scepticism among investors about the systemic capacity of the euro area to respond to the evolving crisis", he said.