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More Warning Signs of Worsening Eurozone Fiscal Crisis

November 12th, 2010
The Financial Times is reporting that Ireland’s fiscal debacle, facilitated by the government’s decision to bailout Anglo-Irish Bank at public expense, is beginning to inflict collateral damage on the wider Eurozone. Specifically, Italy and Spain are seeing their government bond yields escalate in lockstep with Ireland.

In effect, as the FT puts it, the bond vigilantes are already expecting Greece, Italy and Portugal to default on their public debt, and that Ireland and Portugal will need to follow Greece in seeking a Eurozone bailout.

As the sovereign debt crisis in Europe remains volatile and unpredictable, how long can the current low yields of U.S. Treasuries last, as bond vigilantes begin to look at recent moves by the Federal Reserve, in particular the second round of quantitative easing? It may not be long before the Eurozone public debt crisis claims not only more European victims, but also migrates to the United States.


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