Global financial markets again face a turbulent week, as the latest agreement between European leaders aimed at solving the region’s debt crisis threatens to unravel at a time when traders are nervously watching to see whether the Libor rate-rigging scandal will spread to other major European banks.

Overnight, Italian Prime Minister Mario Monti lashed out at certain Nordic countries, which he accused of sabotaging the decision reached at the recent summit of European leaders to use the eurozone’s bailout fund to help countries such as Italy and Spain, which still faced prohibitive borrowing costs despite implementing tough budget cuts.

Although he did not name them, Monti’s targets were Finland and the Netherlands, which have  indicated they will block measures agreed at the European summit, which would make it easier to use the eurozone’s bailout funds to buy the bonds of struggling countries such as Italy and Spain, which would help push down their borrowing costs.

According to Monti, “inappropriate” declarations from Nordic countries were reducing the credibility of unanimous decision taken at the European summit. He deplored the fact that these countries were “unilaterally undoing what we had built together with so much joint fatigue”.

Monti also warned that the eurozone faced a perilous few months. He noted that “August is often a month where human activity seems to focus on financial markets”, referring to the fact that in recent years, markets have witnessed outbreaks of extreme turbulence at the height of the European summit. But he expressed the hope that decisions taken at the recent European summit meant that “the eurozone market will be better protected than before”.

But Monti’s optimism appears feigned. He’ll be all too aware that by the end of last week, Italian and Spanish borrowing costs were again at dangerous levels, with Italian 10-year bond yields climbing above 6%, while Spanish bond yields finished at 6.97%, close to a record high.

He’ll also know that this latest spike in Italian and Spanish borrowing costs came after a senior eurozone official gave background briefings to major news organisations. The background briefing cast doubts on the supposed breakthrough at the recent European summit — allowing the eurozone’s bailout fund to directly recapitalise struggling banks, rather than channelling the money through national governments.

According to the anonymous official, the actual agreement the European leaders reached is more complicated. The eurozone’s emergency bailout fund will only be able to take equity stakes in ailing banks if these loans are fully guaranteed by the countries concerned. While these guarantees will not directly show up on the official debt burdens of the countries concerned, they will add to their contingent liabilities. The official added that these guarantees would be needed at least until the eurozone created a true banking union, likely to be some years away.

These background briefings set the stage for a fiery meeting of eurozone finance ministers in Brussels later today, which was due to finalise the terms of the Spanish bank bailout, which could reach up to €100 billion ($US123 billion). The briefings have also soured the mood for investors, who hoped that the latest European summit had finally broken the vicious cycle between troubled banks and debt-laden countries whereby countries that are forced to rescue their banks see their own debt levels soar, and their borrowing costs increase.

But political disappointment won’t be the only thing troubling investors this week. They’ll also be keeping a close watch on whether the Libor rate-rigging scandal — which has already claimed the scalp of Barclays boss Bob Diamond — spreads to other major European banks. Barclays has agreed to pay a £290 million ($US450 million) fine over its efforts to manipulate Libor, which serves as the benchmark for rates on trillions of dollars of loans worldwide.

According to the German magazine Der Spiegel, two Deutsche Bank employees have been suspended after the bank employed external auditors to determine whether its staff were involved in rigging interbank lending rates.

Overnight, a Deutsche Bank spokesman declined to comment on the article, but pointed to the bank’s latest quarterly report, which stated that the bank had received subpoenas and requests for information from US and European authorities in connection with setting interbank rates.

*This article was first published at Business Spectator