JPMorgan’s Frenkel Says Spain, Italy Need Policies to Back Aid

European policy makers who think Spain and Italy won’t need aid or new fiscal programs now that their debt costs have dropped are misreading the markets, JPMorgan Chase & Co.’s Jacob Frenkel said.

The drop in sovereign interest rates doesn’t mean the crisis is over, and outside aid won’t work without a program to fix underlying causes, said Frenkel, chairman of JPMorgan Chase International, in an interview on Bloomberg Television’s “In the Loop.”

“The reason why yields have declined is because the market expects them to have the program,” Frenkel said. “The issue is not just financing, it is adjustment, and if they don’t do the adjustment, the financing will just be throwing good money after bad.”

Spain sold more debt than planned and yields on Spanish 10-year bonds fell to a six-month low last week after Moody’s Investors Service affirmed the nation’s credit rating on signs that policy makers will seek aid. Italian bond yields also dropped to their lowest levels since March last week, although they have since erased that decline.

Frenkel said the so-called fiscal cliff, the automatic increase in U.S. taxes and spending cuts that will take effect unless Congress reaches a compromise, is the biggest threat to the U.S. economy.

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