By Andy Scott, premier account manager at currency specialist HiFX

The Euro dropped across the board following an auction of Spanish government debt that saw investors demand interest rates of 2.3% to lend money for three months and 3.3% for six months.

Whilst they managed to sell the full amount, the demand for the debt was weaker and clearly investors are growing ever more sceptical about the nations ability to repay even short term debt with the yields they’re having to pay. This comes less than 24 hours after Spain formally requested EU aid needed to recapitalise its bank and Cyprus became the fifth eurozone country to seek an international bailout.

As EU leaders prepare to meet in Brussels this week there appears to be little hope of any new significant agreements for further integration of the 17-nation bloc which has been identified as a key flaw in the monetary union created 10 years ago. The quickest solution is seen as plans to issue debt jointly through Eurobonds as oppose to individual nations all selling their own debt, preventing the problem of individual nations facing soaring borrowing costs.

However, Germany remains firmly against this and you can understand to a certain extent why when recently investors have been paying them to buy their debt for certain maturities! They don’t want to have to pay higher borrowing costs due to their profligate neighbours and want to ensure they maintain a quid pro quo for any nation they bailout.

Whichever way you look at it Germany is going to have to continue to support its neighbours. The question is, can they afford to have another summit without reaching firm agreement on measures to bring an end to this crisis as a bailout of one of its largest economies (Spain) would surely be the beginning of the end.

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