Worries over the state of the euro zone and its debt load continued to affect markets on Wednesday. Even though 10-year bond spreads backed off Tuesday’s punishing record highs and the euro recovered from its Tuesday low, gold soared to more than $1,390 in Europe against the euro and sterling as investors sought safe havens.
Despite a bailout package for Ireland that was announced Sunday, many appear skeptical that the euro zone can control the spread of the crisis. Concerns that began with Greece and moved to Ireland are now focused farther downstream, on Portugal, Spain and Italy. According to Reuters, Willem Buiter, Citigroup chief economist, said in a research note this week that the situation in the euro zone could be the "opening act" of a global sovereign debt crisis that could spread to the United States and Japan.
Unrest is such that, according to a Reuters report, the U.S. Treasury announced late Tuesday that Lael Brainard, U.S. undersecretary for international affairs, will visit Europe this week, with stops in Madrid, Berlin and Paris. Brainard will discuss "economic developments in Europe" and the "shared agenda on strong and sustainable growth," according to Treasury’s short statement.
Deputy finance ministers from the G20 had taken part in a previously arranged Monday conference call to discuss the situation. The call was described as routine.
The European Central Bank (ECB) will meet Thursday, and it is thought that there may be an announcement of new actions to ward off the crisis, such as expanding government bond purchases to push yield down. Jean-Claude Trichet, ECB president, spoke out against the turmoil of the markets on Tuesday, warning investors not to underestimate policymakers’ determination to restore stability to the euro zone.