Jittery markets pushed beleaguered Spain back into the danger zone today as Europe’s finance ministers met to hammer out the details of a €100 billion (£79.3 billion) bailout for its banks.
Madrid’s borrowing costs soared above 7% amid waning faith over the beleaguered eurozone struggler’s ability to pay its way after it became the fourth nation to seek a bailout last month. Italy – also seen as another candidate for a lifeline – also saw its own benchmark 10-year debt costs jump to 6.15%.
Eurozone finance chiefs are trying to flesh out plans agreed at a leaders summit to give the European Central Bank greater oversight of the bloc’s banks, as well as using the €500 billion European Stability Mechanism bailout pot to cut borrowing costs. Spain’s banks – which need €62 billion to repair the damage of a bust property boom - will also be recapitalised via the ESM.
But expectations of today’s meeting are low as early optimism over the summit two weeks ago fades and analysts worry about the time needed to put reforms in place. Chris Scicluna, head of economic research at Daiwa Capital Markets Europe, said: “We still have a lot of implementation risks here, around the bank bailout for example. The Bundestag still has to approve recapitalisation of the Spanish banks via the ESM and that will be difficult unless there is progress on a European banking supervisor.”
Eric Wand, bond analyst with Lloyds Bank Corporate Markets, added: “After the initial euphoria we are back to square one.”
Spanish prime minister Mariano Rajoy is poised to unveil a third wave of austerity measures in coming days in a bid to avoid a full-scale bailout, but recession and biting unemployment has shrivelled the tax take.
Rajoy is weighing up a fresh tax grab on products like food, gas and water which currently carry a reduced rate of VAT.
The latest market assault on Spain came as more evidence of the impact of the Eurozone’s lingering crisis emerged. French French business confidence took a fresh blow in June while the OECD thinktank’s latest economic snapshot highlighted a worrying slowdown for China and India.
