SPAIN/FILE: Spanish borrowing costs at record high as Madrid stock market hits nine year-low
Record ID:
837971
SPAIN/FILE: Spanish borrowing costs at record high as Madrid stock market hits nine year-low
- Title: SPAIN/FILE: Spanish borrowing costs at record high as Madrid stock market hits nine year-low
- Date: 31st May 2012
- Summary: MADRID, SPAIN (MAY 30, 2012) (REUTERS) OUTGOING PRESIDENT OF THE BANK OF SPAIN WALKING DOWN STAIRS
- Embargoed: 15th June 2012 13:00
- Keywords:
- Location: Spain
- City:
- Country: Spain
- Topics: Business,Economy,Politics
- Reuters ID: LVACB92RPGBENX05RRCPBASV4HY9
- Aspect Ratio:
- Story Text: Spain's borrowing costs lurched higher and the Madrid stock market hit a nine-year low on Wednesday (May 30) as investors rattled by deepening fears about its banking system fled to the relative haven of German bonds.
Spain's banking woes - the result of a burst property bubble aggravated by recession - have combined with growing uncertainty about Greece's survival in the euro zone to reignite Europe's sovereign debt crisis, driving the euro to a two-year low of 1.2454 U.S. dollars. European shares also extended their fall after Italy paid heavily to sell bonds.
Madrid said it will probably tap credit markets to inject funds into nationalised lender Bankia, but that looks expensive with 10-year borrowing costs at 6.67 percent near their euro era peak and close to levels at which Ireland and Greece sought international bail-outs.
As Spain's risk premium surged, Spanish Prime Minister Mariano Rajoy continued to insist the government had no intention of seeking an EU/IMF bailout either for its banks or for the state and argued on Monday (May 28) the rise in borrowing costs had more to do with the uncertainty over the Greek elections than with Spain's banks.
Central to Rajoy's plan to kick start the economy is the reduction of the Spanish deficit, but he also favours reforms in the European Union calling for more monetary, fiscal and political integration with a revised role for the European Central Bank.
"A debate must be opened on the Europe of the future, I am in favour of more fiscal integration, more monetary integration and more political integration and there the future role of the European Central Bank and the Eurobonds you have referred to should be discussed," Rajoy told parliament on Wednesday.
As Spain's risk premium shot up beyond the 530 mark, the Economy Ministry played down a Financial Times report that the European Central Bank had rejected an initial plan to rescue Bankia, Spain's fourth biggest bank, by stuffing it with government bonds that could be used as collateral to borrow from the ECB.
Economy Minister Luis de Guindos defended the government's measures on Bankia on Wednesday arguing the government was accelerating the bank clean-up process.
"Bankia is not the beginning of the problems of Spain's financial system. Simply what we are doing here, what the government is doing, is accelerating the process to clean-up the Spanish banking system," De Guindos said as he left parliament.
The Bankia rescue will affect Spain's public debt to gross domestic product ratio and the deficit at a time when the country has implemented growth-stifling austerity measures aimed at bringing state debt down to Europe-agreed levels.
Spain's borrowing costs have risen in recent weeks as investors fret about a possible exit of Greece from the euro zone, making it less likely that Spain could raise cash needed for the Bankia rescue by issuing new debt.
De Guindos on Wednesday expressed confidence the outcome of the upcoming Greek elections would be positive for Europe.
"The fundamental factor affecting the risk premium are the uncertainties over the result of the Greek election," De Guindos said. "I'm absolutely convinced, which is the premise the Eurogroup and European councils work on, that finally in Greece there will be a stable government that implements the measures that have been required," he added.
The abrupt resignation of Bank of Spain Governor Miguel Angel Fernandez Ordoñez on Tuesday (May 29), a month before his term was due to end, has added to market concerns about the handling of the Bankia crisis and relations with European institutions.
The centre-right People's Party, or PP, have piled blame on Ordoñez, who was due to step down on July 12 at the end of his six-year term.
On Wednesday Ordoñez said Spain's central bank should be able to defend its handling of the banking crisis but added that if the government required him to remain silent he would do so.
"If the government thinks I should remain silent and talking behind closed doors, I will keep doing that and I think it's what should be done. I would ask everyone that at this enormously grave time - because confidence indicators have plummeted and with the management of the banking crisis having reached a dramatic situation - and I have my opinion, but I think at this time, if that's what the government and its parliamentary majority have decided, that's what I should do," he said during an appearance at Senate commission on budgets.
The political name-calling has only undermined Spain's credibility at a time when its borrowing costs have soared to levels close to unsustainable because of risks at the banks.
The recent 23.5 billion euro bailout for the biggest problem bank, Bankia, has revived concerns that the bill will get so high that Spain cannot handle it alone.
While markets are losing confidence in Spain, the electorate that gave Rajoy a landslide victory last November is also feeling the pinch as austerity measures and lack of opportunity reduce the confidence of a country with an jobless rate of 23 percent, the highest in Europe.
The crisis people say is not only felt by those who don't have jobs but also by those who do.
"You can notice it in the prices, the way we work now, people are tightening (spending) a lot and everything is much more difficult either to find a job or have a client accept your estimate," Raquel a 35 year-old sales director said.
For the unemployed, the prospects are grim.
"(I have lost my job) Like everyone else, from one minute to the next they tell you you're on the street and you'll get 33 days per year and you stay at home," Enrique, 48 year-old truck driver, who lost his job in October said.
In addition to the sorting out the banking sector, labour reform is seen as key to Spain's efforts to persuade markets it is able to slash its budget deficit and boost the competitiveness of its fragile economy. - Copyright Holder: REUTERS
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