Investors losing faith in the euro

Washington: European leaders will continue this week to slowly hammer out new structural measures to shore up the euro currency zone, but market confidence among investors already showed signs of crumbling late last week.

Germany is pressing for tighter fiscal discipline through budget controls that would initially draw approval from a few of the 17 nations that belong to the currency union without requiring time-consuming revisions of the union's treaty.

Critics say the plan would effectively create two Eurozones, a central one paying lower interest rates and a peripheral one paying higher borrowing rates.

"Europe needs to understand that financial markets don't work on political timelines, and they are already a long way behind the curve," Australian Treasurer Wayne Swan said in his weekly economic note over the weekend.

France's budget minister, Valerie Pecresse, said that "we won't restore confidence unless we show proof — very quickly — about the unfailing solidity and solidarity of the Eurozone."

European financial ministers meet this week, but next month holds bigger tests on the political and economic front.

Italy had to pay investors 6.5 per cent on six-month bonds in an auction Friday, a record in the euro era.

In addition, Standard & Poor's downgraded Belgium's credit rating.

"The good news is that practically everyone agrees that the sovereign debt market does not properly reflect the true default probabilities," Erik Nielsen, UniCredit Global's chief economist, said in a letter to clients on Sunday.