Spanish 10-year bond yields have jumped to a new euro-era high of 6.886pc this morning, following the Moody's downgrade. Italian yields are up five basis points to 6.237pc. 07.23 French finance minister Pierre Moscovici says his country will stick to deficit reduction targets in 2012 and 2013, ading that it will be possible to hit them without austerity. 07.20 Asian stock markets have fallen this morning on signs that the problems in Greece and Spain could spread to Italy. Japan's Nikkei 225 index slipped 0.2pc, Hong Kong's Hang Seng dropped 0.6pc and South Korea's Kospi lost 0.1pc. Mainland Chinese shares were mixed. Italy's 10-year borrowing rate rose to 6.07pc yesterday, and the interest rate on its one-year bonds also jumped. 07.18 Meanwhile, the tide continues to turn in Europe, with Germany beginning to open the door to shared debts for the first time in a profound change of policy. Officials in Berlin say privately that Chancellor Angela Merkel is willing to drop her vehement opposition to plans for a "European Redemption Pact," a "sinking fund" that would pay down excess sovereign debt in the eurozone. "It is conceivable so long as there is proper supervision of tax revenues," said a source in the Chancellor's office. The official warned that there would be no "master plan" or major break-through at the EU summit later this month. Mr Merkel rejected the Redemption Pact last November as "totally impossible," even though it was drafted by Germany's Council of Economic Experts or Five Wise Men and is widely-viewed as the only viable route out of the current impasse. 07.16 Moody's wasn't the only one doing the downgrades last night. Earlier in the evening, Egan-Jones (not one of the big three), sent Spain deeper into its "junk" pile, slashing its rating to "CCC" from "B." S&P, Moody's and Fitch still rate Spain at investment grade. 07.11 You can read Moody's statement in full here. 07.10 In a statement last night, the rating agency said: The decision to downgrade the Kingdom of Spain's rating reflects the following key factors: The Spanish government intends to borrow up to EUR100 billion from the European Financial Stability Facility (EFSF) or from its successor, the European Stability Mechanism (ESM), to recapitalise its banking system. This will further increase the country's debt burden, which has risen dramatically since the onset of the financial crisis. The Spanish government has very limited financial market access, as evidenced both by its reliance on the EFSF or ESM for the recapitalisation funds and its growing dependence on its domestic banks as the primary purchasers of its new bond issues, who in turn obtain funding from the ECB. The Spanish economy's continued weakness makes the government's weakening financial strength and its increased vulnerability to a sudden stop in funding a much more serious concern than would be the case if there was a reasonable expectation of vigorous economic growth within the next few years. 07.00 The downgrades just keep on coming. A week after Fitch slashed Spain's credit rating to two notches above "junk" status, Moody's last night cut the country to just one notch above junk. What's more, the rating agency said that it could throw Spain into the junk pile within three months, as it placed the country under review for another downgrade.