“Only days after European finance ministers signed off on the country’s €100bn bank bail-out”, says The Wall Street Journal, Spain’s borrowing costs have reached dramatic levels and the country could now need a full-scale international sovereign rescue.
Fears that several of Spain’s regional governments will need state bail-outs sent bond yields soaring. Yields on two-year Spanish bonds jumped to a euro-era high of more than 6.5% on Monday. That’s the highest since November 1996 and reflected the biggest one-day jump since the eurozone debt crisis began, says the FT.
Yields on ten-year bonds rose above 7.5%. Valencia requested government help on Friday. Other regions are expected to follow. Spain’s 17 autonomous regions hold €15.8bn of debt, which will need refinancing in the second half of 2012.
There are no surprises here, says The Wall Street Journal. The bail-out was based on “optimistic assumptions”. Spain’s GDP forecast is falling and the outlook “is no brighter”. But don’t count on Spain’s political leaders making that connection. Officials “are still treating high bond yields… as if they are the result of market irrationality instead of a symptom of real problems”.
The myth is that high borrowing costs are the result of a “plot against the euro by evil speculators”. The reality is that “Spain’s banks, regulators and government have lost investors’ trust”, says Lex in the FT. Banks pretended their property was worth more than it is; their regulator was “also in denial”. The eurozone has “ample cash” to rescue the banks, but few trust Spanish book values, or Madrid’s responses.
Spain’s economy minister Luis de Guindos and German’s finance minister Wolfgang Schaeuble say Spain’s borrowing costs do not correspond to its economic strength. However, Spain is now “well past the point of no return”, says Jeremy Warner in The Daily Telegraph. Banning the short-selling of Spanish stocks proves the point. European Central Bank (ECB) President Mario Draghi could still save Spain, but the German-led northern bloc “seems determined to stop him”.
Could money printing (QE) be the answer? Unlike Britain and America, Spain can’t act unilaterally. But Draghi recently suggested the ECB “had no objection in principle” to QE. Time is running out. If Draghi is going to start the euro printing press, he had better get a move on.