France, Germany say euro saved, investors sceptical

Germany and France declared on Monday that Europe had taken decisive action to save the euro by rescuing Ireland and laying the foundations of a permanent debt resolution system, but markets were unconvinced.
Under pressure to arrest the threat to the currency before markets opened and prevent contagion engulfing Portugal and Spain, EU finance ministers endorsed an 85 bln-euro loan package on Sunday to help Dublin cover bad bank debts and bridge a huge budget deficit.
They also approved the outlines of a long-term European Stability Mechanism (ESM), based on a Franco-German proposal, that will create a permanent bailout facility and make the private sector gradually share the burden of any future default.
German Finance Minister Wolfgang Schaeuble said calm and reality should return to financial markets, where speculation against euro zone countries was "hardly rational".
And French Economy Christine Lagarde said "irrational", "sheep-like" markets were not pricing sovereign debt risk in Europe correctly.
But the deal failed to lift markets, the euro falling to two-month lows against the dollar as investors focused the debts of peripheral euro zone economies.
"I think it is almost impossible now to stop the contagion," said Mark Grant, managing director of corporate syndicate and structured debt products at Southwest Securities in Florida.
The cost of insuring Portuguese and Spanish debt hit record highs and investors demanded a higher premium to hold Belgian and Italian government bonds over German debt.
"Spain and Portugal (credit default swaps) are now at record wides, suggesting that contagion fears haven't been assuaged by Ireland's bailout," said Markit analyst Gavan Nolan.
Portugal is widely seen as the next euro zone "domino" at risk and business confidence for November added to the gloom. It fell for the second straight month on poor prospects for the economy due to austerity measures designed to calm investor concerns about its creditworthiness.
Nouriel Roubini, the U.S. economist who warned of an impending credit crisis before 2007, told the Diario Economico business daily that Portugal would likely need a bailout.
"Like it or not, Portugal is reaching the critical point. Perhaps it could be a good idea to ask for a bailout in a preventative fashion," he said.
Troubles in Portugal could spread quickly to Spain because of their close economic ties, and EU Economic Monetary Affairs Commissioner Olli Rehn warned Madrid might in any case need to take further austerity measures to trim its deficit if growth were lower than forecast next year.
Under its bailout, Ireland was given an extra year, until 2015, to get its budget deficit down below the EU limit of 3% of GDP, an acknowledgment that austerity measures will hit growth in the next four years.
Greece has been given a six year extension to 2021 on loan repayments linked to its rescue, said Finance Minister George Papaconstantinou, at the price of a higher rate of interest.