- Obama downplays IRS scandal, blames Obamacare rollout on ‘outdated’ agencies
- Pregnancies decline overall, up among older women
- Pentagon plans to destroy Syrian chemical arms on ship at sea
- Paris Metro issues ‘politeness manual’ to improve passengers’ behavior
- Justin Bieber, crew detained at Australian airport in drug search
- Lee Rigby trial: Muslim who machete-hacked soldier calls it ‘humane’ kill
- GM ending Chevy sales in Europe to focus on Opel and Vauxhall
- Putin’s diplomats to U.S. busted for living high life off $1.5M bilked from Medicaid
- Happy Meal: Couple goes to McDonald’s, leaves with bag packed with cash
- Boehner: It took me 3 to 4 hours to sign up for Obamacare
Spain bank rescue glee morphs into markets rout
MADRID — Euphoria over a lifeline of up to €100 billion ($125 billion) to rescue Spain’s hurting banks morphed into a financial markets rout in a matter of hours Monday, as investors digested the still-undefined plan and became concerned the country may be unable to repay the new loans.
The rate on Spanish 10-year bonds — a measure of market trust in a country’s ability to repay debt — rose to an alarmingly high yield of 6.47 percent at the close of trading after falling to 6 percent in the morning. And the benchmark IBEX-35 stock index closed down 0.5 percent after surging 6 percent in the morning.
Overshadowing Spain’s acceptance over the weekend of a bailout for banks burdened by toxic property assets and loans are Greek elections next weekend and concerns that the anti-bailout left-wing party Syriza could become the largest party in parliament, putting the country’s membership in the zone at risk.
Investors also zeroed in on Italy, sending its bond yields sharply higher amid worries it could be next in line for a bailout because of a deepening recession and increasing pressure on the administration of Premier Mario Monti. And Spain’s economy is in terrible shape with no sign of improvement anytime soon.
“Plenty of risk still remains in place, with question marks over the ability of Spain to repay the debt, especially, if the country fails to get back on the growth path, the outcome of the upcoming Greek elections and the perception of situation in Italy,” Anita Paluch of Gekko Global Markets wrote in a note to clients.
Spain’s bond yield is worrisome because it is perilously close the 7 percent rate that is considered unsustainable, and the level that pushed Greece, Ireland and Portugal to ask for bailouts of their government finances. While Spain’s bailout does not include the government, investors are worried that Spain might eventually be forced into such a situation.
The rescue for Spain’s banks was portrayed by Spanish and European officials as a bid to contain Europe’s widening recession and financial crisis that have hurt companies and investors around the world. Providing a financial lifeline to Spanish banks was designed to relieve anxiety on the economy.
Finance ministers of the 17 nations that use the euro said Saturday they would make the loan of up to €100 billion available to the Spanish government to prop up banks laden with non-performing loans and other toxic assets after the collapse of a real estate bubble.
Recession-hit Spain, which has the eurozone’s fourth-largest economy, has yet to say how much of this money it will tap while it waits for the results of two independent audits of the country’s banking industry, not due until June 21 — after the Greek elections. The bailout loans will be paid into the Spanish government’s Fund for Orderly Bank Restructuring (FROB), which would then use the money to strengthen the country’s teetering banks.
Worried investors still don’t know precisely how much Spain will seek, and how large a safety margin of extra money it might take to cushion itself against further shocks, such as a deterioration in the economy already in its second recession in three years with unemployment of nearly 25 percent, the highest in the eurozone.
“Markets will certainly ask the question about whether a second bailout might be required and the margin for error between the sort of euro40 billion the IMF is saying and the €100 billion ceiling in terms of what we heard,” said Mark Miller of Capital Economics in London.
He added that with the bailout, Spain’s debt-to-gross domestic product ratio — which was a relatively low 68.5 percent at the end of last year — could shoot up to the 90s next year. And bond yields will remain high.
If the ratio gets up to Greek levels of 120 percent or so, and 10-year yields close in on the near-7-percent levels Spain hit several weeks ago “then people will ask that question about a second bailout” for Spain, Miller said.
Another issue is whether the European money comes with strings attached for the government, and not just an obligation for banks to restructure. When the bailout was announced on Saturday, Spanish Economy Minister Luis de Guindos said the rescue would not force any new austerity measures on a government that has already issued a wave of painful measures since taking power in December.
Why such hatred toward America's freedom of religion?
- 'Hunger Games' delivers Obama's message on income inequality: liberal group
- Inside China: Nuclear submarines capable of widespread attack on U.S.
- Obama: Nelson Mandela now 'belongs to the ages'
- NAPOLITANO: Pope Francis should be saving souls, not pocketbooks
- Russian diplomats busted bilking $1.5 million from Medicaid
- Nelson Mandela, South Africa's first black president, dies at age 95
- PRUDEN: British press horrified as London's new mayor dares to proclaim the truth
- Hack attack: 2 million Facebook, Twitter passwords stolen
- Activists encourage Obama to circumvent Congress, use more executive authority
- Democratic infighting erupts over 'we can have it all' fantasy on entitlements
Independent voices from the The Washington Times Communities
Criticism may not be agreeable, but it is necessary. It fulfills the same function as pain in the human body. It calls attention to an unhealthy state of things.
Understanding economic events with a free market explanation
John Wood illustrates a new American politics, and the path to get there.
Interviews and show reviews from the Los Angeles punk scene past and present. Los Angeles has always been rich in punk rock talent since punk rock was born.
White House pets gone wild!