cryptogon.com

The breakfast meeting discussed how EU governments should deal with, in other words pay for, the “toxic” banking assets that triggered the economic crisis.

As discussed here on Monday, the European Commission warned that government attempts to buy up or underwrite “impaired” assets could plunge the EU into a deeper crisis, one that threatens the Union.

Everyone is terrified that a second bank bailout will push up government borrowing at a time when bond markets have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain, to pay it back.

“Estimates of total expected asset write-downs suggest that the budgetary costs – actual and contingent – of asset relief could be very large both in absolute terms and relative to GDP in member states,” a confidential EC document, seen by The Daily Telegraph, cautioned.

“It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems.”

Spread yields are widening on bond markets as investors judge it riskier to buy the debt of a country like Italy than the debt of another like Germany.

In line with the risk, and the low performance of some EU economies compared to others, the markets have demand a higher premium on government bonds issued to raise the cash.

The more the doubt there is over high levels of government borrowing, the more the markets have asked governments to pay to service their borrowing and all the more indebted countries become.