Selasa, 12 Juni 2012

Bank bailout backfires as Spain's cost of borrowing soars to crisis levels

Bank bailout backfires as Spain's cost of borrowing soars to crisis levels

By Adrian Lowery

PUBLISHED: 10:48 EST, 12 June 2012 | UPDATED: 12:36 EST, 12 June 2012

The massive bank bailout agreed for the Spanish banking system appeared to have backfired today as fears that Spain will be slower to repay its debts sent borrowing costs for the nation rocketing to post-euro highs.

Spanish government bond yields hit 6.82 per cent - their highest since the euro was launched in 1999 and dangerously close to an unsustainable 7 per cent - as holders of Spanish debt worried about falling to the back of the line for repayment. Spain arranged to borrow £80billion from the EU at the weekend to shore up its crippled banks.

Michael Hewson, senior market analyst at CMC Markets said it is becoming increasingly apparent to investors that Spain may well need a bailout itself: 'The seven per cent level is the level at which Greece, Ireland and Portugal all succumbed to pressure for a bailout.'

Enlarge   Pain in Spain: By borrowing to shore up its banks, the Spanish government has dented its debt-repaying credibility in the eyes of the markets

Pain in Spain: By borrowing to shore up its banks, the Spanish government has dented its debt-repaying credibility in the eyes of the markets

Investors are also concerned that Madrid may find it difficult to access credit markets in the longer term to service its national debt.   

Italian yields also rose above 6.0 per cent as attention turned to the state of Rome's finances, with Austria's finance minister saying Italy may need a financial rescue because of its high borrowing costs. The statement drew a furious rebuke from the Italian prime minister.

EU PREPARES FOR 'UNLIKELY' GREEK EXIT WITH CASH MACHINE PLAN

European Union officials have discussed measures to stop mass withdrawals from cash machines, a report claimed today, if a Greek exit were to tip the eurozone into a deeper crisis.

Finance officials have also discussed imposing border checks and introducing eurozone capital controls, in order to check a possible flight of funds, according to Reuters news agency.

The officials stressed they did not expect Greece to leave the euro and the ideas were from a range of contingency plans - but the preparations indicate the gravity that EU leaders are attaching to a potential Greek exit.

James Hickman, managing director of Caxton FX, said the contingency plan in case Greece drops out of the single currency is 'hardly surprising'.

'The situation in the eurozone is worrying to say the least and any responsible institution should of course be preparing for the worst-case scenario,' he added.

Stock markets across Europe were at least steady today after yesterday's rollercoaster ride in the wake of the bailout announcement.

'Despite Spain's banks being better off to the tune of €100billion, yields on Spanish government debt have surged above the danger level as traders interpret this as an escalation of the debt crisis and not as a preventative measure that policy makers had tried to spin things,' said Jonathan Sudaria, a dealer at London Capital Group.  

Italy, as well as Cyprus, came into the eurozone firing line last night after the Spanish bailout failed to inspire a lasting boost for markets. Early euphoria evaporated as investors fretted about the details of a Spanish rescue and which country would be next to need support.

Kathleen Brooks, an analyst at Forex.com, said: 'Throughout this crisis Europe’s periphery has been personified as a pack of dominos â€" if one falls then others will follow. So now the attentio n turns to the next domino.'

Traders are also nervous of Greek elections on Sunday, which could see angry voters back radical left-wing parties opposed to austerity â€" pushing Athens closer to an exit from the euro. 

Cyprus, which is heavily exposed to Greece, hinted that it may need a bailout by the end of the month â€" both for its banks and the country as a whole.

'The issue is urgent,' said finance minister Vassos Shiarly. 'We know the recapitalisation of the banks must be completed by June 30 and there are only a few days left.'

It is feared that Cyprus may be followed by Italy and the country’s borrowing costs soared as the crisis threatened to spread to Rome. Official figures in Italy showed the economy shrank 0.8 per cent in the first three months of the 2012 â€" the sharpest decline for three years.

The terms of the Spanish bailout â€" widely seen as less onerous than for other countries â€" could also trigger dem ands for earlier rescues to be renegotiated.

It has stoked popular anger in Greece, where the radical-left coalition, SYRIZA, may win the second election, increasing the risk that Greece could renege on its EU/IMF bailout and therefore move closer to abandoning the euro.

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There is going to be a slow motion bus crash and the bus contains the Euro countries economies !. The closer we stand to the point of impact the greater collateral damage we will suffer !. We need to turn away , and seek cover with emerging economies in Asia and the Americas !. You can not help a gambler if you can not keep him out of the betting shop !. Vote for UKIP to force Westminster politicians to make meaningful decisions !

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I think its all like a game of Poker with the Germans playing the game. There is NO 80-100 billions euros Etc . Its just words Talk Talk said to calm the Money markets down Keep people happy (But its all going to go Pear-shaped soon Big-Time). Its a Shame we have a Weak-Submissive government full of Muppets. Mr Cameron Co also Ed Miliband Co because Europe is looking for strong Leadership Not the EU or The Germans.

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Mr Bailey?

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When you realize that of the potential $100 billion to spend, 22% of that has to be provided by Italy and their lending to Spain is at 3% but Italy has to borrow at 6% . They have to lend to Spain $22bn at 3% - it is just madness. Everybody is getting worried again. The solution that they seem to have come up with seems to be worse than the problem in the first place...

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Greeks should vote against the existing EU package and go for a nice soft one like Spain has just received! Stick two fingers up to the EU leaders and fight for your survival Greece!

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I wonder how much debt there is out there, the Banks will not allow anybody to survive until someone allows them to go bust. They are really in charge.

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Once again the EU shoots itself in the foot. If the bailout had been funded by issuing long dated government bonds to the banks in return for shares and these bonds had then been used to borrow from the ECB the issue of senior bonds being subordinated to the EU would not have arisen. These idiots in their ivory towers are totally unaware of commercial realities and the way the markets work.

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Trying to pretend it wasn't a bailout when it clearly was has helped matters.It's just discontented the others and reassured Italy that it doesn't need a bailout either.

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Why can't they see like most ordinary people can that the Euro is finished and the quicker we let it go the better. We can then let everyone revert to their own currencies and start to pick up the pieces. They may as well burn the money than use it for bail -outs.

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until the printing presses stop we will be fine, it is working a treat. just u papers keep giving us all heart attacks

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