Investors must yet again face the fallout of the European Union’s inability to come together in crisis, but this time they are up against what could be the deepest recession on record.

Italian bonds declined, driving yields back toward one-year highs hit in March, after a marathon teleconference between euro-area finance chiefs failed to produce a plan to support economies amid the coronavirus pandemic. The euro too fell against most Group-of-10 peers, while German bonds, some of the safest assets money can buy, rallied on haven bids.

While nations from the U.S. to Japan are already using a mix of fiscal and monetary steps to counter the growth shock, euro-area governments are still squabbling over the course of action.

It’s a reminder of the discord that almost tore the bloc apart during the sovereign debt crisis. Hopes are fading that the current turmoil could see some sort of joint debt issuance to better integrate the continent fiscally, even though a new call between officials is scheduled for Thursday.

“So far it’s the usual market reaction after failed eurogroup meetings -- bunds rally and peripheral spreads widen, led by Italy,” said Martin van Vliet, a rates strategist at Robeco in Rotterdam. “Typically, agreements in Europe are not reached in one go, but eventually they do get reached.”

The Bank of France estimates that the country’s economy will shrink 6% this year, after contracting the most since World War II in the first quarter. The scale of the downturn is likely to be mirrored across much of the continent.

The problem for investors in Europe’s peripheral nations, seen as the most vulnerable to the pandemic, is that the European Central Bank is alone in providing cross-border support -- through its 750-billion-euro ($814 billion) bond buying program. Unlike the Federal Reserve’s unlimited asset-purchase plan, the ECB’s is set to end this year -- and that means governments also need to take up the slack.

National fiscal deficits are set to blow out this year, with some predicting that Italy’s debt as a proportion of economic output could rise to 160%. That could put pressure on the nation’s investment-grade rating, and, if that happens, it would trigger a mass exodus from the country’s bond markets and likely herald another sovereign debt crisis in the region.

Italian 10-year yields surged as much as 18 basis points to 1.80%, the highest level since March 19, widening the yield premium over Germany to over 200 basis points. The euro declined 0.2% to $1.0870. Even before the talks broke down, foreign-exchange options traders are placing greater focus on the next central bank meetings.

Talks between euro-zone finance ministers collapsed after a dispute between the Netherlands and Italy over the conditions attached to the potential use of credit lines from the region’s bailout fund, according to two people familiar with the discussion.

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