EU: systemic capicity in doubt

BRUSSELS/ROME (Reuters) – The European Union voiced support for Italy and Spain under attack on financial markets but acknowledged that investors now doubt whether the euro zone can overcome its sovereign debt woes.

European Commission President Jose Manuel Barroso said a surge in Italian and Spanish bond yields to 14-year highs was cause for deep concern and did not reflect the true state of the third and fourth largest economies in the currency area.

“In fact, the tensions in bond markets reflect a growing concern among investors about the systemic capacity of the euro area to respond to the evolving crisis,” Barroso said in a statement.

He urged member states to speed up parliamentary approval of crisis-fighting measures agreed at a July 21 summit meant to stop contagion from Greece, Ireland and Portugal, which have received EU/IMF bailouts, to larger European economies.

But neither he nor European Monetary Affairs Commissioner Olli Rehn offered any immediate steps to stem the crisis, which has flared again with full force less than two weeks after that emergency meeting.

Italy has borne the brunt of a selloff triggered by the unresolved debt crisis and fears of a global economic slowdown. Its stocks and bonds gained some respite after a further early slump on Wednesday.

Italian Economy Minister Giulio Tremonti held two hours of emergency talks with the chairman of euro zone finance ministers, Jean-Claude Juncker, in Luxembourg but neither disclosed anything of substance after the meeting.

The European Commission said after Rehn spoke to Tremonti that Italy was “doing what is necessary to put the country back on track for higher sustainable growth and ensuring fiscal consolidation.”

A Commission spokeswoman said there had been no discussion of a bailout for Italy, which would overwhelm the bloc’s existing rescue funds.

The market turmoil caused alarm in some parts of Europe but apparent insouciance in the bloc’s biggest economy.

“Italian and Spanish bond yields rose to their new record highs. This is a very alarming and scary thing,” Finnish Prime Minister Jyrki Katainen told public broadcaster YLE. “The whole of Europe is in a very dangerous situation.”