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European markets gripped by tensions as debt fears deepen

Nov 25, 2010, 13:12 GMT

Protesters gather outside at Goverment Buildings, Dublin, 24 November 2010. EPA/PAUL MCERLANE

Frankfurt - Ireland's tough austerity plan has failed to dispel investor worries about Europe's debt crisis with tensions continuing to grip both the euro and bond markets Thursday.

German central bank chief Axel Weber on Wednesday joined European efforts at attempting to shore up market confidence in the common currency, saying: 'An attack on the euro has no chance of succeeding.'

Speaking at a diner held in the German Embassy in Paris, he insisted that Europe was prepared to keep stocking up funds for the 750-billion-euro (1-trillion-dollar) rescue program for eurozone member states.

'Seven hundred and fifty billion should be enough to reassure the markets,' Weber said in his speech in Paris, but if not, 'it will have to be increased.'

'Governments will do what is necessary to see the euro maintained,' he said.

But despite remarks the euro slipped Thursday, edging down 0.1 per cent 1.3328 dollars while the government debt of the handful of heavily indebted eurozone countries were also hit again.

This includes both Portugal and Spain, which investors see as possible next victims of Europe's financial crisis.

Analysts believe this is a sign that investors remained about sceptical Europe's efforts to head off the debt crisis from spreading to other parts of the eurozone.

'Given the huge amount of political uncertainty (in Ireland), it is hardly surprising that the new plan has not provided markets with much relief,' said Ben May, European economist with the research group Capital Economics.

On Wednesday, the Irish government unveiled a 15-billion-euro four-year deficit reduction plan, including tax hikes and cuts in public spending.

One risk now facing Ireland is that the nation's deeply unpopular government could fail to push the budget cuts through parliament.

'We continue to think that the major risk for Ireland would be that the government fails to secure the vote for the austerity budget,' said ING Bank economist Oscar Bernal.

'Any delay in this process might hit market sentiment badly,' he said.

The austerity program is a prerequisite for a European Union/International Monetary Fund rescue package of about 85 billion euros, which Ireland agreed to on the weekend.

In doing so, Ireland became the second eurozone state after Greece to call for a EU/IMF bailout.

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