European investors remain on edge

European and global markets bounced back early Sept. 13 after a tumultuous day Sept. 12, buoyed largely by reports of Chinese interest in buying large amounts of Italian debt.

But despite the short-term injection of confidence in Asian and eurozone markets, as well as in Prague, where stocks opened strong Sept. 13 before beginning a slow but steady fall, analysts say China is not a magic bullet for the growing eurozone debt crisis.

"China talking to Italy is something that can alter the market for a bit, but it won't bring a major turnaround," said David Marek, chief economist for Patria Finance. "Stocks will still continue to fall."

On Sept. 12, growing fears of a Greek debt default, plunging French bank shares and a spike in Italian bond yields had global market experts skittish. And though reports that China is considering financial support for Italy - the eurozone's third-largest economy - allowed the euro to recover after falling to a seven-month low, all eyes remain locked on Italy and Spain, which have moved to the center of the single-currency bloc's crisis.

"It is possible to imagine a eurozone without Greece, but it's not possible to imagine it without Spain or Italy, but there are no funds to save them," Marek said. "They are too big to fail, but too big to bail out. The situation in Greece is nowhere near as important as the financial sustainability of Spain and Italy."

At a meeting of EU foreign ministers Sept. 12, Foreign Affairs Minister Karel Schwarzenberg argued against leaders in Germany who have suggested provisions be added to EU treaties that would allow member states to be expelled from the eurozone if they do not fulfill the rules. Schwarzenberg said if a country can be kicked out of the eurozone it should have the option to leave on its own, too.

"There should naturally be a possibility for a country to withdraw from the eurozone, itself," he said.

Such a possibility could lead to the collapse of the whole single-currency concept, Marek said.

"Practical issues make it difficult," he said. "We don't know how to set up a new eurozone, and that's the reason markets are reacting so violently."

- Filip Šenk contributed to this report.

Jack Buehrer can be reached at
jbuehrer@praguepost.com