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When the European Union began its drive to create the euro in the 1990s, opponents of the single currency embraced the idea of a multispeed Europe, a departure from the bloc’s traditional practice of having every member adopt each of the group’s policies. For euro-skeptic Britons in particular, this differentiated union would enable the U.K. to stay outside the euro area but remain an EU member in good standing, with full access to the bloc’s single market for goods and services.

Today this multispeed Europe is more of a reality than ever, but with a twist. The great distinction is not between the countries that are in or out of the single currency but between the euro area members themselves. Europe’s debt crisis has made sovereign risk the paramount driver of the region’s bond market and has sent yield spreads soaring to levels far above those that prevailed in the days of national currencies. For borrowers with large funding programs, the challenge of securing financing at an acceptable price is greater than ever.

The recent worsening of the crisis, including Portugal’s decision last month to accept a E78 billion ($110 billion) bailout package from the EU and the International Monetary Fund, and mounting speculation about a rescheduling of Greece’s debt just one year after it received E110 billion in assistance, has raised the risks for borrowers and investors alike. The brief respite earlier this year, when spreads narrowed and European policymakers talked as if they had resolved the crisis by agreeing to set up a permanent bailout facility, the European Stability Mechanism, now appears to have been a false, or at least premature, dawn. There are signs of increasing tension in the euro area; comments by German Chancellor Angela Merkel and European Central Bank officials ruling out any Greek debt restructuring sent yields on ten-year Greek government bonds spiking by more than 60 basis points on May

20 alone. Those bonds were yielding 16.76 percent late last month, or 1,392 basis points more than comparable German government bonds, known as Bunds.

In effect, the euro area is now a three-tier market. At the core lies Germany, which sets the European benchmark and enjoys unfettered access to the markets. Yields on ten-year Bunds stood at 3.07 percent late last month, above the 2010 low of 2.7 percent but well below the 4.2 percent level prevailing in May 2007, before the onset of the global financial crisis. A second tier of countries includes core euro members such as France and the Netherlands and non-euro countries like Sweden and the U.K. These states have seen their yields rise relative to Germany’s, but they can still tap the markets freely, even if most have scaled back their borrowing programs as part of an EU-wide drive to reduce budget deficits. France’s ten-year bonds were yielding 38 basis points more than Bunds last month, well above the spread of 2 to 3 basis points that prevailed back in 2006. Last, there are countries like Italy and Spain, which have not had to resort to EU-IMF bailouts but are struggling with heavy debt burdens and sluggish economies. The spread on Spanish ten-year bonds rose to 241 basis points late last month, a near record since the adoption of the euro, while spreads on Italian bonds stood at 170 basis points, up from about 120 back in November.