Make us your home page
Instagram

Spain's cost to borrow soars to highest ever in eurozone

MADRID — Financial pressure is mounting on Spain as its economy shrinks and the cost of bailing out banks and regional governments grows. Investors pushed the country's borrowing rates to alarming heights Monday amid concern that the government could be overwhelmed by debt and forced to seek an international bailout.

The interest rate, or yield, on Spain's 10-year bond spiked 0.22 percentage points to 7.45 percent. That is the highest level since the euro began in 1999 and is considered unsustainable for more than a few months.

Concern over Spain increased after the central bank said Monday that the economy contracted by 0.4 percent during the second quarter. The government predicts the economy will keep contracting into 2013 as new austerity measures — such as tax hikes and benefit cuts — hurt consumers and businesses.

Investors also worry the government will face new costs to help its ailing banks and regions. Spain has asked for a eurozone bailout package of up to $121 billion to save the banks, but is ultimately liable to repay the money if the banks do not.

The eastern region of Valencia revealed Friday it would need a bailout from the central Madrid government. Over the weekend, the southern region of Murcia said it may also need help. Speculation is now strong that several other cash-strapped regional governments may follow.

The problem is the central government is facing high borrowing costs, too.

If those borrowing rates do not fall, the central government may end up being locked out of international markets and be forced to seek a financial rescue, like Greece, Ireland and Portugal.

"The higher the yield goes, the more untenable the situation becomes," said Rebecca O'Keeffe, head of investment at Interactive Investment.

Spain is the fourth-largest economy in the eurozone, bigger than Greece, Ireland and Portugal combined. A debt default by Spain would rock global financial markets and threaten the existence of the euro currency. That's why finding a way to lower its borrowing rates is crucial for the financial well-being of Europe and the global economy.

On Monday, the euro slipped just below $1.21 against the dollar, its lowest since June 2010.

Spain has called for the European Central Bank to take emergency action to ease its government borrowing rates. In the past, the ECB has bought bonds on the open market, lowering their yields, or interest rates. But these measures have over the past two years only temporarily lowered government borrowing rates. The ECB claims the measures are not effective in fighting the crisis and that governments need to take action by, among other things, sharing countries' debt loads.

Economy Minister Luis de Guindos insisted Monday that Spain would not need a sovereign bailout and said the intense market pressure throughout Europe was due to uncertainty over the future of the single euro currency.

"There are situations of irrationality in the short-term behavior of the markets, extreme nervousness which can't be resolved by governments and must be sorted out from other angles," he said.

Spain's cost to borrow soars to highest ever in eurozone 07/23/12 [Last modified: Monday, July 23, 2012 8:32pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Associated Press.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. Seminole Heights restaurants face struggles amid killings, post-Irma

    Food & Dining

    TAMPA — The neighborhood's hip circle of popular, well-regarded restaurants is feeling the squeeze in the wake of a recent killing spree. And the timing is rough.

    Ella’s Americana Folk Art Cafe has been taking precautions in light of the Seminole Heights killings: keeping the lights on all night and having employees walk to their cars in groups.
  2. St. Pete-Clearwater holding food, supply drive for hurricane refugees

    Airlines

    CLEARWATER — St. Pete-Clearwater International Airport and Allegiant Air are holding a food and supply drive for the Hispanic Outreach Center in Pinellas County. The event, which will benefit refugees displaced by Hurricane Maria, will be held Tuesday from 5 p.m. to 8 p.m. at the airport at 14700 Terminal Blvd.

    St. Pete-Clearwater International Airport and Allegiant Air are hosting a food and supplies drive Tuesday for refugees displaced by Hurricane Maria. | [Times file photo]
  3. Tallest building in Pinellas County in search of a new name

    Real Estate

    ST. PETERSBURG — The name "Priatek" is gone from Pinellas County's tallest building, perhaps to be replaced by that of a much better-known company new to the Tampa Bay area.

    The Priatek name is off of downtown St. Petersburg's tallest building.
 [LARA CERRI  |   Times.  2015]
  4. Estuary wins pier design contest for the Lee Roy Selmon Expressway extension

    Real Estate

    TAMPA — And the winner is… Estuary.

    Voters overwhelmingly supported a pier design called Estuary for the $200-million extension of the Lee Roy Selmon Expressway in Tampa.
[Courtesy of AECOM]
  5. Amazon receives 238 proposals from places eager to become its 2nd headquarters

    Business

    NEW YORK — Amazon said Monday that it received 238 proposals from cities and regions in the United States, Canada and Mexico hoping to be the home of the company's second headquarters.

    Earlier this month, an Amazon employee gives her dog a biscuit as the pair head into a company building, where dogs are welcome, in Seattle. Amazon says it received 238 proposals from cities and regions hoping to be the home of the company's second headquarters. 
[AP Photo/Elaine Thompson]