Market pressure on Spain eased slightly yesterday, but analysts saw a financial rescue as inevitable if the country’s borrowing costs remained at current levels.
The costs “are not sustainable” in the longer term, Fernando Ballabriga from Esade business school said.
The yield on 10-year bonds dipped below 7 percent, the level above which Spain is expected to follow Greece, Ireland and Portugal in seeking a bailout from the EU and the International Monetary Fund (IMF).
Analysts attributed the respite to reports that European leaders were poised to use euro zone rescue funds to buy Spanish and Italian bonds. The European Commission and the Spanish government, however, denied the reports.
On Tuesday Spain sold e3 billion (R31bn) of government bonds at interest rates of more than 5 percent. Another debt auction is due today.
Madrid had the support of its European partners, the IMF and the Group of 20 (G20), who believed that “Spain does not need a rescue as long as it pursues its current structural reforms”, Finance Minister Cristóbal Montoro said yesterday.
But at a G20 summit on Tuesday, pressure mounted on Spain to dispel the bailout threat by clarifying the details of its bank rescue as soon as possible.
The euro zone has pledged to inject up to e100bn into Spain’s ailing banks.
Prime Minister Mariano Rajoy’s government had counted on that plan, and on the victory of a pro-bailout party in Greece’s election at the weekend, to lower market pressure on Spain. But neither helped.
The government was expected to specify the exact amount needed for the bank rescue, as well as other details, once two independent audit companies release their conclusions on the state of Spanish banks today.
Spain may apply for the bank rescue already this week, according to media reports.
A key question was whether the application would dispel market concern over the bank bailout piling up Spain’s debt and thus undermining its solvency, reports said.
The government was weighing options to prevent that situation. With Spain’s European partners reluctant to inject funds directly into Spanish banks without state guarantees, another option was to extend the deadline by which Madrid would have to reimburse its debts, the daily El Pais said in an editorial.
Esade’s Ballabriga said Spain might be able to withstand market pressure at least until the details of the bank rescue were clarified. – Sapa-dpa