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. Water Street Tampa unveils video showing downtown's transformation

    Business

    TAMPA — Water Street Tampa, the sweeping, 50-plus acre redevelopment project in Tampa's urban core, has unveiled new images and video of what the downtown district will look like upon completion.

    Strategic Property Partners released a conceptual image of what the Tampa skyline will look like once its redevelopment of 50-plus acres of downtown will look like. [Photo courtesy of  of SPP]
  2. Florida ranks high for workplace equality between men and women

    Working Life

    When it comes to the workplace, Florida ranks fifth in terms of gender equality, a WalletHub study released Tuesday found.

    Florida ranks high in terms of equality between men and women in the workplace. Pictured is Sandra Murman, county commissioner in 2015, talking about the differences in pay between men and women. | [Times file photo]
  3. Treasury secretary's wife boasts of travel on government plane, touts high fashion

    National

    U.S. Treasury Secretary Steven Mnuchin's wife, Louise Linton, boasted of flying on a government plane with her husband to Kentucky on Monday and then named the numerous fashion brands she wore on the trip in an unusual social media post that only became more bizarre minutes later.

    Steven Mnuchin and his then- financee Louise Linton watch as President Donald Trump speaks during Mnuchin's swearing-in ceremony as  treasury secretary in the Oval Office of the White House on Feb. 13. [Mandel Ngan | AFP via Getty Images]
  4. Ford, Chinese partner look at possible electric car venture

    Autos

    BEIJING — Ford Motor Co. and a Chinese automaker said Tuesday they are looking into setting up a joint venture to develop and manufacture electric cars in China.

    In this April 23, 2016 photo, attendees take smartphone photos at a promotional event for Ford Motor Company ahead of the Auto China car show in Beijing. Ford Motor Co. announced an agreement Tuesday, Aug. 22, 2017 with a Chinese partner to look into forming a joint venture to develop and manufacture electric cars in China. [AP Photo/Mark Schiefelbein]
  5. Judge throws out $458,000 condo sale, says Clearwater attorney tricked bidders

    Real Estate

    CLEARWATER — Pinellas County Circuit Judge Jack St. Arnold on Monday threw out the $458,100 sale of a gulf-front condo because of what he called an "unscrupulous" and "conniving" scheme to trick bidders at a foreclosure auction.

    John Houde, left, whose Orlando copany was the high  bidder June 8 at the foreclosure auction of a Redington Beach condo, looks in the direction of Clearwater lawyer and real estate investor Roy C. Skelton, foreground,  during a hearing Monday before Pinellas County Circuit Judge Jack St. Arnold.  [DOUGLAS R. CLIFFORD   |   Times ]