Eurozone's Debt | featured news

Spain's latest credit rating downgrade has thrown into sharp relief the need to revive a banking sector that could need another 100 billion euros to cover bad debts in order to avoid exposing another weak flank in the euro zone crisis.

Just when we thought the euro crisis had subsided for a bit, Spain is bursting back up as a trouble spot. On Wednesday, Prime Minister Mariano Rajoy said the country is “facing an economic situation of extreme difficulty.” Spain is struggling to borrow money and can’t hit its deficit targets.

Just three years ago, the euro was being praised as the can-do currency that had delivered unprecedented prosperity in Europe. Now, it's widely derided as a hugely flawed experiment in the wake of a debt crisis that's threatening its very existence — an uncomfortable backdrop as the currency's notes and coins hit their first decade in circulation on Jan. 1.

Europe’s debt crisis is going from bad to worse. The borrowing rates for troubled--and even not-so-troubled--European governments once again soared Friday, heightening the danger of an all-out collapse in Europe’s common currency. It comes as political leaders across the continent are all pointing to each other as needing to act to avert a worse outcome.

Germany and France clashed on Wednesday over whether the ECB should take bolder steps to stem the euro zone debt crisis, with Chancellor Angela Merkel issuing one of her starkest warnings yet against fiddling with the central bank's strict inflation-fighting mandate.

Stocks jumped more than 2 percent at the open on Thursday after European leaders agreed to boost the region's bailout fund and struck a deal with banks and insurers to accept 50 percent losses on Greek bonds.

European leaders “have risen to the challenge,” German Chancellor Angela Merkel said. French President Nicolas Sarkozy proclaimed their July 21 summit a “historic turning point” and Luxembourg Prime Minister Jean- Claude Juncker called it the “final package, of course,” to extinguish the debt inferno. Then they went on vacation. Before they returned to work, the deal fizzled.

The country that seems to crop up more and more in the current eurozone discussions is Italy, but why should it be affected by the Greek crisis?

European Union leaders made some progress toward a strategy to fight the euro zone's sovereign debt crisis on Sunday, nearing agreement on bank recapitalization and on how to leverage their rescue fund to try to stop bond market contagion.

By insisting that it receive collateral from Greece in return for aid, Finland threatens to upend an agreement that euro zone countries made in July to expand the E.U. bailout fund.