Stockton, Calif., Could Go Bankrupt

Morning Business Memo:

Stockton, Calif., could become the biggest U.S. city to file for bankruptcy as local officials struggle to restructure millions of dollars of debt. Council members met Monday night. The city had until 11:59 reach a deal with its creditors under a new state mediation law designed to help municipalities avoid bankruptcy. Stockton spokeswoman Connie Cochran said those negotiations were confidential, and that nothing would be announced at the deadline.

Microsoft is paying $1.2 billion to buy Yammer, an Internet startup that has built a social network similar to Facebook for the business world. It's the latest attempt by Microsoft to snap up firms that specialize in social marketing and Internet services.

Rupert Murdoch's News Corp. is considering a plan to divide itself into two companies. Published reports say News Corp. would split off its less profitable newspaper business from its far larger movie studio and TV networks.

The pain in Spain is now the biggest worry for Europe as it struggles with debt and financial problems. Spain's borrowing costs doubled and even tripled at today's auction of short-term government debt. Investors demanded higher yields as worries grow that Spain will not be able to manage a very expensive rescue of its ailing banks. The rate on three-month Spanish bills was 2.36 percent, compared with 0.85 percent in a similar auction on May 22.

Spain's battered banks have taken another hit with a sweeping downgrade by Moody's. The firm is reducing its ratings on debt issued by 28 Spanish banks. Monday Spain formally requested financial aid for its banks for other eurozone nations.

German Chancellor Angela Merkel may be taking an even harder line as European leaders prepare for their summit this Thursday. At a conference in Berlin she said shared euro bonds and European deposit insurance were "economically wrong and counterproductive," according to Bloomberg News. But other reports say an important new proposal may be in the works. It would give the European Union broader powers to order changes in national budgets when debt and deficit rules are breached.

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