The Financial Times reports Spain and Italy rush to quell fresh crisis. "The flurry of activity came against the backdrop of another big sell-off in markets. Yields on benchmark 10-year Spanish and Italian bonds peaked at 6.45 and 6.25 per cent respectively. The premiums Madrid and Rome pay to borrow over Germany also reached euro-era highs of 404 and 384 basis points. Both the yields and premiums are close to levels that pushed Greece, Ireland and Portugal into bail-outs. The premium France pays to borrow over Germany also hit a euro-era high of 75 basis points. Analysts said it was difficult to see what could stop Spanish and Italian rates continuing to climb, particularly in light summer trading."
"In the US, the S&P dropped 2.6 per cent, its biggest one-day slide in nearly a year and turned negative for the year as it fell for the seventh straight day, a downward streak not seen since October 2008. Gold surged to a record just shy of $1,660 an ounce, while the Swiss franc hit all-time peaks against both the euro and the dollar."
Krugman says, "I really don’t know how this is going to play out; Italy and Spain are too big for extend and pretend, and they’re also too big to save. But this is huge, and just as worrying in its own way as the US crisis of governance."
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