Debt crisis: Spain and Italy to be bailed out in £600bn deal

Two rescue funds are to be used to buy the debts of the troubled economies, the cost of which have reached record highs in recent weeks.

It is hoped that the move, which represents a substantial shift in policy for Germany’s chancellor, Angela Merkel, will send a strong signal to financial markets that Europe’s biggest economy is finally prepared to back its weaker neighbours.

Mrs Merkel and other European leaders have come under intense pressure at this week’s G20 summit to take radical action to stem the growing euro crisis which has pushed up the cost of Spanish bonds to unsustainable levels.

The communiqué issued at the end of the G20 summit, which finished in Mexico last night, said that European leaders had agreed to take action to bring down borrowing rates. (more)