Spain bailout fears mount in euro storm
20 Jun 2012 12:37 AM GMT
Fears of a full-scale bailout for Spain mounted on Tuesday as its borrowing costs spiked to danger levels on concern over the nation’s stricken banks and fast-rising debt.
After Greek elections averted the immediate threat of Athens exiting the eurozone, concern turned to Spain where the banks have been thrown a eurozone lifeline of up to 100 billion euros [$125 billion]. Even as Greece’s pro-bailout parties negotiated the terms of a coalition government, averting the immediate risk of a disorderly exit from the eurozone, Spain’s troubles mounted.
Tapping the markets for the first time since the Greek vote on Sunday, Spain raised 3.04 billion euros [$3.8 billion], beating its 2.0-3.0-billion-euro target in an auction of 12- and 18-month notes. But it had to pay exorbitant rates to lure investors– 5.074 percent for 12-month debt and 5.107 percent for 18-month debt.
The yield on Spanish benchmark 10-year government bonds shattered the 7.0-percent barrier on Monday for the first time since the creation of the euro in 1999, pushing over 7.2 per cent.
‘It now appears inevitable that Spain will require a sovereign bailout, possibly very soon,’ said capital economics chief European economist Jonathan Loynes.
Rising bond yields reflected a belief that the banking bailout, agreed with eurozone partners on 9 June, would not address broader fiscal problems, he said.
Spain’s plan to cut the public deficit from 8.9 percent of economic output last year to 5.3 percent this year and 3.0 percent in 2013 relied on a ‘very unlikely’ recovery from recession next year, Loynes said.
After Greek elections averted the immediate threat of Athens exiting the eurozone, concern turned to Spain where the banks have been thrown a eurozone lifeline of up to 100 billion euros [$125 billion]. Even as Greece’s pro-bailout parties negotiated the terms of a coalition government, averting the immediate risk of a disorderly exit from the eurozone, Spain’s troubles mounted.
Tapping the markets for the first time since the Greek vote on Sunday, Spain raised 3.04 billion euros [$3.8 billion], beating its 2.0-3.0-billion-euro target in an auction of 12- and 18-month notes. But it had to pay exorbitant rates to lure investors– 5.074 percent for 12-month debt and 5.107 percent for 18-month debt.
The yield on Spanish benchmark 10-year government bonds shattered the 7.0-percent barrier on Monday for the first time since the creation of the euro in 1999, pushing over 7.2 per cent.
‘It now appears inevitable that Spain will require a sovereign bailout, possibly very soon,’ said capital economics chief European economist Jonathan Loynes.
Rising bond yields reflected a belief that the banking bailout, agreed with eurozone partners on 9 June, would not address broader fiscal problems, he said.
Spain’s plan to cut the public deficit from 8.9 percent of economic output last year to 5.3 percent this year and 3.0 percent in 2013 relied on a ‘very unlikely’ recovery from recession next year, Loynes said.
Next Story
