Barroso behind the times

There were rumours flying around Whitehall this morning that the EU leadership was feeling the strain from yesterday’s rise in Spanish and Italian borrowing costs. Both stand rather too close to 7 per cent for comfort, and the price of insuring against sovereign default in the two countries also soared to its highest level in two weeks. The limited progress made after the Greek deal of 21 July seems to have been undone.

In fact, the problems stem from the piecemeal deal to allow Greece to selectively default. As I wrote at the time:

‘The European Central Bank has declared that it is happy to allow this and will continue to accept government bonds in the event of sovereign default. This is a major retreat from its earlier position and commentators are clear that the Eurozone is now flirting with contagion. Measures are being prepared to deal with that eventuality.