LUXEMBOURG: Euro zone Finance Ministers meet as Spain's 5-year borrowing costs reach a 15-year high

Record ID: 858142

  • Title: LUXEMBOURG: Euro zone Finance Ministers meet as Spain's 5-year borrowing costs reach a 15-year high
  • Date: 22nd June 2012
  • Summary: LUXEMBOURG, LUXEMBOURG (JUNE 21, 2012) (REUTERS) EU FLAGS FLYING
  • Embargoed: 7th July 2012 13:00
  • Keywords:
  • Location: Luxembourg
  • City:
  • Country: Luxembourg
  • Topics: International Relations,Economic News,Politics
  • Reuters ID: LVAC3J3R54MBUBF4620WPNV29VFF
  • Aspect Ratio:
  • Story Text: The situation in Greece, with its new, pro-euro government, may have provided some temporary respite to euro zone ministers meeting in Luxembourg on Thursday (June 21). Financial markets decided otherwise and sent Spain's medium-term borrowing costs to a euro-era record.
    Spain was waiting for the results of an independent audit set to reveal how big a capital hole in Spanish banks it needs to fill by a euro zone bailout.
    Euro zone finance ministers will be discussing how to channel up to 100 billion euros ($126 billion) in rescue loans to Spanish lenders weighed down by bad loans from a burst property bubble.
    Many in the stock market see the package as a mere prelude to a full programme for the Spanish state.
    Asked about how to end market turmoil, German finance minister Wolfgang Schaeuble said: "If everyone fulfils their commitments, the problems will soon be solved. And if there is less speculation, including in the media, the financial markets won't constantly be insecure," Schaeuble said.
    Spain's financial weakness is in focus a week before a European Union summit tackles long-term plans for closer fiscal and banking union in an effort to strengthen the euro's foundations, after bailouts for Greece, Ireland and Portugal failed to end a 2-1/2-year old debt crisis.
    French finance minister Pierre Moscovici said he trusted Spain and the European Union to solve its problems.
    "I have confidence in Spain's ability to make the necessary reforms, and I have confidence in the European Union's capacity to come up with a response to the difficulties in the banking sector. More broadly, what we need to do in the days ahead is to provide a joint, stable and lasting framework for the euro zone," Moscovici said.
    Leaders of Germany, Italy, France and Spain will meet in Rome on Friday to prepare next week's EU summit.
    Madrid sold 2.2 billion euros in medium-term bonds and attracted strong demand. But yields on 5-year paper rose to a 15-year high of 6.07 percent, a level regarded by analysts as unaffordable for any prolonged period.
    The runaway Spanish yields contrasted with a French auction in which the yield on 5-year benchmark paper hit an all-time low of 1.43 percent.
    "The public finances bill will detail how we will get bak to a balanced budget by 2017 in accordance with the commitments taken by President Francois Hollande during the presidential campaign. I believe France has all the resources to both to carry out growth policies and to respect our public finance commitments," Moscovici said.
    The ministers are also expected to ponder the next steps with Greece. Its new government is to ask lenders for two more years to hit fiscal targets.
    On Friday, finance ministers of the 27-nation EU will take their first stab at starting to forge a banking union, seen as a crucial step to support troubled lenders and the euro. Germany is happy to give the ECB more power to supervise cross-border banks but has so far balked at a joint deposit guarantee to deter bank runs or a resolution fund to deal with failing banks.
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