Fears for eurozone debt is spread across the world
LISBON (Reuters) - The euro, stocks and bonds of indebted euro zone members fell for a second day on Friday as fears of Portugal and other European sovereign debt, which sent investors to the assets concerned safe havens.
All eyes were on Lisbon, where Parliament was scheduled to vote on a bill on regional funding markets see as a crucial test of the ability of governments to contain public spending, which shot in the block of 16 countries in reaction to crisis economic.
The government in Lisbon said that the draft of the opposition, which was approved by a committee on Thursday, jeopardizing the ability to reduce a budget deficit that is expected to total 8.3 percent of gross domestic product (GDP) this year.
Together with Greece and Spain, Portugal is one of the euro bloc countries facing intense pressure to put its finances in order and calm to the markets about the risks of a moratorium on its sovereign debt.
Analysts no longer rule out the possibility that a smaller member of the bloc, Greece, will be expelled, although many believe that monetary union will survive.
Reflecting the range of concerns, investors in the U.S. and Asia out of risky assets during the night and moved to the safety of U.S. Treasuries and Japanese yen.
"The market is closely watching each country's ability to pay its debts. If trust is lost, the rates will go up significantly," said Erkki Liikanen, member of the Governing Council of the ECB.
The euro fell below $ 1.37, its lowest level since May 2009. It also sank against other currencies considered safe haven like the Swiss franc, which forced the Swiss National Bank take the unusual step of intervening in the market.
Greek stocks fell 2.8 percent in the morning, while the Portuguese and Spanish ceded nearly 2 percent, after sinking by between 5 and 6 percent on Thursday.
The cost of insuring government debt of Greece, Portugal and Spain against a moratorium soared to record highs and yields on bonds of the three countries compared to the benchmark German Bunds also rose strongly, a sign of increased nervousness of investors for tax differences in the euro area.
"Now there is significant downward pressure on overall rates, is spreading the fear that the situation in Greece can crawl to other weak European economies," said Owen Ireland, an analyst at ODL Securities. "Confidence is extremely brittle," he added.
Greece tries to reassure
The Greek Prime Minister George Papandreou, on a visit to New Delhi, sought to reassure skeptical about the ability of his Government to pursue austerity measures to reduce their debt and deficit.
"I can understand the doubts, but that is why we have to prove it. Will implement this program in a credible way," Papandreou said.
Greece has pledged to reduce its budget deficit by 4 percentage points, to 8.7 percent of GDP this year, down from 12.7 percent in 2009.
This week the European Commission conditionally approved a three year plan of Greece to reduce its deficit, giving temporary relief.
But the markets still have doubts about Papandreou's ability to carry out its agenda amid threats of social unrest in a country with a history of violent protests.
Greek tax officials began a series of strikes against the austerity plan on Thursday and Feb. 10 is fixed a great stay in the public sector.
The threat of social unrest also has risen in Spain, where criticism of Prime Minister José Luis Rodríguez Zapatero are increasing.
Spanish unions said Thursday they will hold protests and the opposition has threatened a no-confidence vote in parliament, a move that could topple the government.
It is anticipated that on Friday, the government labor reforms Hispanic detail. Unemployment in Spain, whose economy has collapsed since the burst housing bubble, is almost 20 percent.
(Reporting by Andrei Khalip in Portugal, Brian Love in Paris, Terhi Kinnunen in Helsinki; Abhijit Neogy and Manoj Kumar in New Delhi)