Fitch's Spain downgrade casts more shadow on Europe's economic outlook (2)

08:24, May 31, 2010      

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Spain's downgrading reignited concern over the festering eurozone debt problem, and dampened investors' appetite for higher-risk assets.

It also gave another blow to Europe's fragile and tentative recovery, which may be shown on Monday's markets.

"Asymmetric recoveries across the euro zone area and large divergences in competitiveness, growth and inflation prospects also present policy challenges (in Europe)," Ruth Stroppiana, Chief International Economist, said in an article posted in February at Moody's

The challenge has already turned up amid concerns that the sovereign debt crisis could infect banks.

Jamie Dimon, CEO of JP Morgan Chase, warned Europe of the prospect of costly banking bailouts if weaker economies like Greece do not make good on their debts. "A lot of that sovereign debt is owned by European banks, so when these countries have problems, so will their banks."

"The big challenge is to prevent the vicious circle, that means for example the crisis of the public sector turning into a banking crisis," said Ewald Nowotny, a European Central Bank governing council member earlier.

Source: Xinhua

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