The Joplin Globe, Joplin, MO

Business

June 14, 2012

Spain borrowing rates soar after Moody’s downgrade

MADRID — Spain’s key borrowing rate hit a fresh high Thursday not seen since the country joined the euro in 1999, after a credit ratings agency downgraded the country’s ability to just above junk status amid rising fears a bank bailout may not be enough to save the country from economic chaos.

The interest rate — or yield — on the country’s benchmark 10 years bonds rose to a record 6.96 percent in early trading Thursday, close to the level which many analysts believe is unsustainable in the long term and the rate that forced Greece, Ireland and Portugal to seek bailouts of their public finances.

The ratings agency Moody’s downgraded Spain’s sovereign debt three notches from A3 to Baa3 Tuesday night, leaving it just one grade above “junk status”.

Moody’s said the downgrade was due to the offer from eurozone leaders of up to (euro) 100 billion to Spain to prop up its failing banking sector, which the ratings agency believes will add considerably to the government’s debt burden.

The lowered score means that even fewer investors will buy Spanish debt, because organizations like pension funds are mandated to avoid assets with such low creditworthiness.

Spain won’t immediately collapse if the rate hits 7 percent, but reaching that point would affect Spain next week when it is scheduled to auction debt.

“The clock is definitely ticking,” said Michael Hewson, an analyst with CMC Markets.

The bank bailout is intended at recapitalizing the Spanish banking system and calming Europe’s debt crisis. Instead, investors seem unnerved by the government taking on extra debt and have pushed Spanish bond yields — a measure of market jitters — higher all week.

Moody’s said the Spanish government’s ability to raise money on global markets was being hindered by high interest rates, a situation which had led it to accept eurogroup funds to recapitalize debt-burdened banks.

Some details of what the bailout might look like began to emerge Thursday. European officials are considering liquidation — selling off a bank’s assets — as part of the plan to prop up the Spanish banking sector, a spokesman for Competition Commissioner Joaquin Almunia said.

“Liquidation is always looked at,” said Antoine Colombani. “We prefer to liquidate when it’s cheaper for the taxpayer.”

Since a weekend agreement to save the banks involves first lending the money to Spain, there are concerns that taxpayers are ultimately on the hook for the banks’ bad decisions. Also, investors are worried that the deal raises Spain’s debt and deficit levels.

Eurostat, the European statistics agency, said Wednesday that it was unclear how much the country’s deficit would rise because it depended on how it lent the money on to the banks. Part of that decision will depend on the interest rate the banks are given. If it’s too low, it could be considered more a gift than a loan and would count against the deficit.

Colombani said that under one plan being considered, the minimum for the rate would be 8.5 percent. Eurostat did not immediately respond to questions about whether that would be high enough to avoid having the loans count against deficit.

Part of Almunia’s role is to help countries deal with troubled banks, and he will travel to Madrid on Friday to meet with Prime Minister Mariano Rajoy.

The meeting is expected to be tense. Rajoy’s conservative Popular Party on Thursday accused Almunia, former leader of Spain’s Socialist Party, of “disloyalty” and demanded his resignation because he has revealed details of the bank bailout plans before Rajoy’s administration. Almunia was sent to Brussels by former Socialist Prime Minister Jose Luis Rodriguez Zapatero in 2004.

“The only thing he does is attack the interests of Spaniards, causing panic and terrible consequences for everyone,” said Rafael Hernando, the Popular Party’s spokesman in parliament.

The Spanish government’s erratic response to the crisis has irritated European Union leaders, Spain’s leading newspaper El Pais said on its front page Thursday.

The paper said Rajoy has come under criticism in EU circles for presenting the bailout as a “light” measure and a victory for Spain and the euro, leading to an outcry for similar treatment by other austerity-saddled bailout countries such as Portugal and Ireland, which have had to struggle with heavy, externally imposed fiscal controls.

Speaking to the German parliament in Berlin on Thursday, Chancellor Angela Merkel insisted: “Spain is implementing the right reforms.”

“The Spanish Prime Minister is doing this with great courage and great determination,” she added.

Merkel again welcomed Spain’s move to apply for European funds to recapitalize its banks. “We know banks must be reasonably capitalized to do keep the economy afloat, that is the lesson from 2008, 2009,” she said.

“The faster Spain gets the application done, the better,” she said.

Spain’s benchmark stock index, the IBEX-35, opened 0.6 percent lower Thursday but recovered to trade 0.1 percent higher by the afternoon in Madrid, according to financial data provider FactSet. The 10-year bond yield eased slightly to 6.89 percent.

 

1
Text Only
Business
  • Business US stocks close higher for third day in a row

    Investors drove stock prices to their highest level in a week Wednesday,

    April 16, 2014 1 Photo

  • China’s growth slows to 7.4 percent in 1Q

    China’s economic growth slowed further in the latest quarter but appeared strong enough to satisfy Chinese leaders who are trying to put the country on a more sustainable path without politically dangerous job losses.

    April 16, 2014

  • A look at 3 minority business mentoring programs

    A look at minority business mentoring programs, called accelerators, in three metropolitan areas.

    April 16, 2014

  • Why high oil prices are actually good for airlines

    Airline executives frequently complain about fuel costs. But the truth is higher prices actually have been good for business.

    April 16, 2014

  • Business US stocks open higher; Yahoo soars in early trade

    U.S. stocks moved higher in early trading on Wednesday, extending their gains into a third day. Investors welcomed solid earnings from Yahoo as well as some encouraging news about China’s economy and U.S. factory production.

    April 16, 2014 1 Photo

  • Detroit strikes second deal with its other retirees

    The city of Detroit reached tentative agreements to preserve pensions for retired police office and firefighters but cut monthly payments for other former employees, key deals that could accelerate the largest public bankruptcy in U.S. history, officials said Tuesday.

    April 16, 2014

  • Missouri court expands legal rights for injured workers

    The Missouri Supreme Court has overturned 30 years of precedent with a ruling that gives greater legal protections to injured workers who are fired from their jobs.

    April 15, 2014

  • Immigration activists urge Obama to act boldly

    Latinos and immigration activists are warning of political peril for President Barack Obama and Democrats in the fall election unless the president acts boldly and soon to curb deportations and allow more immigrants to remain legally in the U.S.

    April 15, 2014

  • Farmers off to slow start planting corn crop

    Spring planting across the nation’s Corn Belt is sputtering because the soil remains too soggy or cold for effective seeding.

    April 15, 2014

  • Schreiber Foods schedules Carthage plant expansion

    Plans to expand a Schreiber Foods plant to eventually add 160 new jobs have been endorsed by a Carthage committee working with the company. Andrew Tobish, director of combinations for Schreiber, which is based in Green Bay, Wis., confirmed the project, which he said would be complete by late spring or early summer in 2015.

    April 15, 2014

Poll

The Supreme Court may take up a challenge to an Ohio law that bars false statements about political candidates during a campaign. Do you think false accusations made in the heat of an election should be punished as a crime?

A. Yes.
B. No.
     View Results
Facebook
Twitter Updates
Follow us on twitter
NDN Video
Disbanding Muslim Surveillance Draws Praise Hundreds Missing After South Korean Ferry Sinks Passengers Abuzz After Plane Hits Swarm of Bees Boston Bomb Scare Defendant Appears in Court Pistorius Trial: Adjourned Until May 5 Diaz Gets Physical for New Comedy Raw: Ferry Sinks Off South Korean Coast Town, Victims Remember Texas Blast Freeze Leaves Florida Panhandle With Dead Trees At Boston Marathon, a Chance to Finally Finish Are School Dress Codes Too Strict? Raw: Fatal Ferry Boat Accident Suspicious Bags Found Near Marathon Finish Line Boston Marks the 1st Anniversary of Bombing NYPD Ends Muslim Surveillance Program 8-year-old Boy Gets His Wish: Fly Like Iron Man Sex Offenders Arrested in Slayings of CA Women India's Transgenders Celebrate Historic Ruling Tributes Mark Boston Bombing Anniversary Raw: Kan. Shooting Suspect Faces Judge