EU: Ten days to save the euro

The European Union's economic affairs commissioner has warned leaders they have just ten days to save the euro.

Olli Rehn said the eurozone has to choose between "deeper integration" or "gradual disintegration" of the single currency as spiralling debts, soaring unemployment and a banking crisis push the region to the brink.

According to a report in the Independent, Rehn said: "We are now entering a critical period of 10 days to complete and conclude the crisis response of the European Union.

"The economic and monetary union will either have to be completed through much deeper integration, or we will have to accept a gradual disintegration of over half a century of European integration."

The warning came as Downing Street said markets were in the grip of another credit crunch. Yesterday central banks around the world acted to ensure banks could borrow dollars at cheaper levels in order to avoid a credit freeze.

The eurozone's three most prominent leaders, Nicolas Sarkozy, Angela Merkel and Mario Monti, are expected to hold further crisis talks over the next five days.

Bond markets have already shown what investors make of the crisis, with yields on peripheral and core countries' bonds spiking to record highs. Only Germany ahs bucked the trend as investors flee to what they perceive as a safe haven. Yesterday the yield on 1-year German bunds turned negative for the first time ever, according to Bloomberg data.

The yield on the 1-year note fell 13 basis points to -0.05% at midday. This is the first time it has seen a negative yield since Bloomberg began compiling data on the asset class in 1995.

US Treasury yields were also set to move into negative territory this morning. The yield on 1-year Treasuries was at 0.11% while 6 Month yields were as low as 0.05%.

However, Spanish bonds rallied following the coordinated central bank action and the 10 year yield closed 17bps lower at 6.2%. Italian 10 year yields were down 21bps, having at one stage been 12bps higher on the day. It did however remain at 7%.

Portuguese yields failed to turn around with 10-year bonds seeing the payout widen 35bps to 13.4%.