Greek youth marching to demand the end of the dictatorship of the European Central Bank
Greek youth marching to demand the end of the dictatorship of the European Central Bank

The debt crisis is now eating at the heart of the Eurozone, European Commission President Jose Manuel Barroso warned yesterday.

He urged all 27 EU countries to urgently rethink their rescue systems, after earlier warning that the eurozone is in ‘system failure’.

Barroso said ‘Developments in the sovereign bond markets of Italy and Spain are a cause of deep concern… In fact, the tensions in bond markets reflect a growing concern among investors about the systemic capacity of the euro area to respond to the evolving crisis.

‘The systemic nature of the sovereign debt crisis was recognised by the Heads of State and Government of the euro area at their meeting of July21.

‘At that meeting, a unique solution for the crisis in Greece was found involving a partnership between the official and private creditors, but it was agreed that private sector involvement would not be a standard feature of the euro area’s crisis management.’

He added: ‘It is essential, therefore, that we move forward rapidly with the implementation of all of that has been agreed by the Heads of State and Government . . .

‘The necessary technical work to implement the measures agreed on July 21 is already under way and will be completed as a matter of urgency . . . Implementation of some of these measures will also require actions by national parliaments.’

So far, Greece, Portugal and the Irish Republic, known as the eurozone’s periphery countries, have needed bailouts.

The EC is concerned that it might not be able to afford to rescue Italy and Spain.

Barroso said: ‘Markets remain to be convinced that we are taking the appropriate steps to resolve the crisis.

In the UK interest rates were kept at a record low of 0.5 per cent yesterday by the Bank of England’s Monetary Policy Committee (MPC).

The Bank of England also kept its programme of quantitative easing (printing money) at £200bn.

This was as share prices continued to fall following Wednesday’s share crash.

On Wednesday the FTSE 100 index closed 133.88 points, or 2.3 per cent, down to 5,584.51, wiping some £30bn off UK shares.

The FTSE dived by a further 167 points to 5,416 by closing Thursday, a loss of a further £35bn.

This was in the wake of the £3.3bn Lloyds bank losses.

The Bank of England will publish its latest growth and inflation forecast next Wednesday, August 10, when it is expected to lower its predictions for economic growth, and show another rise in inflation.

Both the CBI and the National Institute of Economic and Social Research have downgraded their own growth forecasts for 2011 to 1.3 per cent. The Bank is currently predicting growth of 1.75 per cent.