Spain borrowing rate hits 7%, in bailout danger zone

[Teh One Who Knocks]

By Alan Clendenning, Associated Press


MADRID – Spain's borrowing costs rose to dangerously high levels Monday as finance ministers of the 17 countries that use the euro began to gather in Brussels to discuss terms of a rescue package for the country's stricken banks.

The interest rate, or yield, on the country's 10-year bonds hit 7% Monday, a level that market-watchers consider is unaffordable for a country to raise money on the bond markets in the long term and the point at which Greece, Ireland and Portugal all sought an international bailout. Stocks on Madrid's benchmark index fell 1.7%. The yield later fell back down to 6.99%.

The yield indicates the interest rate a government would have to pay to raise money from financial markets when it holds bond auctions. While Spain can afford the high rates for a few weeks at least, the country would find them too expensive in the longer term.

Ministers will use the meeting in Brussels to attempt to secure Spain's teetering economy, with progress expected on both the bailout loan and a relaxation of the government's financial targets.

The 17 countries that use the euro have committed to support a loan for the banks of up to €100 billion ($124 billion), but the precise amount needed may not be known until September, when the results of all the bank inspections are in, Simon O'Connor, an EU spokesman, said Monday.

Monday evening, the so-called eurogroup of finance ministers will attempt to reach an agreement on what conditions will be attached to the bailout loan, which will codified in a "memorandum of understanding" to which Spain must agree. The 17 ministers — some of whom will need to get approval of the agreement from their parliaments — will probably meet again, later in July, to give final approval to that document.

Then Tuesday, in a choreographed companion maneuver, finance ministers from all 27 European Union countries are expected to give Spain an extra year — until 2014 — to meet its budget deficit target of 3%. The European Commission, the EU's executive arm, has formally endorsed that proposal.

The eurogroup ministers will also meet Greece's new finance minister, Yannis Stournaras, for the first time Monday for preliminary discussions on whether to adjust conditions accompanying the country's bailout.

Officials say no formal decisions are expected from the meeting Monday.

Spanish officials had originally indicated that they would decide Monday how much the country's troubled banks would get from a €100 billion ($124 billion) lifeline from other members of the 17-country eurozone. Spain's bank industry has been struggling since 2008 under the weight of toxic loans and assets following a collapse in the country's property market.

But an official with Spain' economy ministry said last week that the meeting of eurozone finance ministers was not expected to generate a figure for how much Spain would tap. Ministers planned to discuss terms of the loan and may or may not finalize some of them at the evening session, said the official, who spoke on condition of anonymity in keeping with policy.

Outside auditors are expected to complete rigorous assessments of Spanish banks by July 31. Separate stress tests will also be conducted on individual lenders banks to determine how much each bank needs to strengthen its balance sheets against further economic shocks if they can't raise capital on their own, the official said. These results are due to be published in mid-September.

The Spanish official's comments reflect those made by a European official in Brussels last week, who said that no numbers for the overall loan amount would be coming out until bank-by-bank stress tests had been completed. The official added that one of the aims of Monday's meeting would be to get a "political understanding" of the memorandum of understanding for Spain's loan so ministers could start paving the way in their countries to get the bailout approved. Spain's loan needs the green light from all 17 countries using the euro.

Investors fear a full-blown bailout of Spanish public finances would be too large for the eurozone to handle. The country's economy is the fourth-largest among the 17 nations that use the common euro currency — behind Germany, France and Italy — and it is also larger than those of Greece, Ireland and Portugal combined.

The interest rate on Spanish 10-year bonds hit a eurozone high of 7.18% in intraday trading on June 18 before closing at 7.12% that day, according to financial data provider FactSet.

[Acid Trip]

Spain's debt load mixed with a 20% unemployment rate suggests a bleak future. I wonder how much it will cost Germany/EU/IMF to bailout Spain.

:-k

[Arkady Renko]

it's a good thing we're about to phase out the subsidies for former eastern germany, cause we're about to load an even bigger millstone on our backs for a much longer time.

Seriously though, if the Spanish government was more aggressive about its reform agenda and would start reeling in the regional governments' insane budget overdrafts, their interest rates would drop a lot. I'm not sure how many people buy the idea that Germany, Finland, the Netherlands and Austria can shoulder a guarantee for Spain's public debt. So even if we were dumb enough to vouch for them, markets might well try to call the bluff and germany's AAA rating would be in serious danger.

[Teh One Who Knocks]

Do you think Germany will lend me some money? :-k

[Jezter]

it's a good thing we're about to phase out the subsidies for former eastern germany, cause we're about to load an even bigger millstone on our backs for a much longer time.

Seriously though, if the Spanish government was more aggressive about its reform agenda and would start reeling in the regional governments' insane budget overdrafts, their interest rates would drop a lot. I'm not sure how many people buy the idea that Germany, Finland, the Netherlands and Austria can shoulder a guarantee for Spain's public debt. So even if we were dumb enough to vouch for them, markets might well try to call the bluff and germany's AAA rating would be in serious danger.

Our Minister Katainen is Merkel's bitch at this point... Germany leads and Finland whines. And now the papers here are pulling headlines like "From Euro role-model to Euro-bully" when we Finns are demanding some sort of action to have more influence how this situation is handled. So that we just don't go like sheep into slaughterhouse. I don't get it...

[FBD]

the germans are being had after enjoying the euro benefits while it was viable. at this point, the only reason the euro is still hanging around is just to make the dollar look good :lol:

[Jezter]

the germans are being had after enjoying the euro benefits while it was viable. at this point, the only reason the euro is still hanging around is just to make the dollar look good :lol:

And because it would be disastrous to leave the Euro now. I have faith in the currency and EU. Just that the shitty countries just need to start actually following the rules instead of letting them slip year after year. Now we see what that has caused. Damnit.

[FBD]

:lol: Jez, just because chopping off a gangrenous foot appears to be catastrophic, doesnt mean the alternative wont be more so. I wasnt saying it wouldnt be painful, but the sad fact is, pain train's a comin', woo WOOOOOO!!!! And there aint a whole heck of a lot any of these nations are going to do to be able to escape unscathed.

[Jezter]

:lol: Jez, just because chopping off a gangrenous foot appears to be catastrophic, doesnt mean the alternative wont be more so. I wasnt saying it wouldnt be painful, but the sad fact is, pain train's a comin', woo WOOOOOO!!!! And there aint a whole heck of a lot any of these nations are going to do to be able to escape unscathed.

Well yea, this will be a long and painful road no matter what happens. Just that I want this whole EU thing to work. It has its benefits as it has its downfalls. Hopefully we will all pull through in the end.

[FBD]

Sorry Jez, hopefully I dont offend you...but that seems to be the opinion of most every other EU'er - "we invested so much into it, now that we're up to the hilt, we've vested, we've got to keep going to make sure this whole effort works." Reason has got to ask...at what point does one cut his losses? It seems that...lol...like our global banking system, if it wasnt built on a pack of lies, its surely morphed into one...and its all a big bloody money black hole, a resource pit...

[Lambchop]

Cheap holidays for me! !

[Teh One Who Knocks]

The Associated Press


BRUSSELS (AP) – Euro area finance ministers agreed early Tuesday on the terms of a bailout for Spain's troubled banks, saying that $36.88 billion can be ready by end of this month.

The finance ministers for the 17 countries that use the euro as their official currency will return to Brussels on July 20 to finalize the agreement, having first obtained the approval of their governments or parliaments, eurozone chief Jean-Claude Juncker said early Tuesday morning.

As part of the agreement with Spain, finance ministers from all 27 European Union countries are expected Tuesday to approve a one-year extension, until 2014, of Spain's deadline for achieving a budget deficit of 3 percent.

There will be specific conditions for specific banks, and the supervision of the financial sector overall will be strengthened, Juncker said.

"We are convinced that this conditionality will succeed in addressing the remaining weakness in the Spanish banking sector," he said.

Dutch Finance Minister Jan Kees de Jager said the agreement should be finalized soon.

"We have a tentative deal on the bailout conditions for a bailout of Spanish banks," De Jager said. "The total will likely be 100 billion euros. Some countries like the Netherlands, Germany and Finland need to get parliamentary approval. We hope this can be wrapped up within a week."

The exact amount of the bailout will likely not be known until September, when individual examinations of different Spanish banks have been completed.

De Jager said Madrid's partners agree that "financial sector reforms in Spain must be ruthlessly implemented. These reforms include notably a cap on salaries of bank executives and a ban on bonuses."

However, he said a system of EU-wide banking supervision still needs to be worked out.

"There are still differences over this," he said. "The details will be worked out by the end of the year."

But on Monday, before the eurogroup meeting began, Mario Draghi, the chief of the European Central Bank, said he was confident that a banking union in the European Union would be achieved.

"The first thing to be created will be the supervision," Draghi told a committee of the European Parliament. "We are talking about the long-term sustainability of the European monetary union. We are going as fast as we can. It is better to do things right than in a hurried fashion. We certainly want to see this thing wrapped up by the end of the year," he said, referring to banking oversight.

"By the end of this year we will have something that is not perfect, but achievable."

[redred]

how big is this euro zone pot ?,i know we don't always get the full story from the media but seems theres lots being handed out and not a lot going back in

[Jezter]

Sorry Jez, hopefully I dont offend you...but that seems to be the opinion of most every other EU'er - "we invested so much into it, now that we're up to the hilt, we've vested, we've got to keep going to make sure this whole effort works." Reason has got to ask...at what point does one cut his losses? It seems that...lol...like our global banking system, if it wasnt built on a pack of lies, its surely morphed into one...and its all a big bloody money black hole, a resource pit...

Oh no, it doesn't offend me at all! I do understand what you are saying perfectly. "at what point does one cut his losses?" That really is a legit question to ask if things keep getting worse. That is why we, the people, need to be informed better about the figures and be more open about the movements of the markets and finances. At the moment, it is more or less cabinet games of the big boys and girls. We don't get informed as well as we should. It would be nice to get some calculations and estimations about the costs of all this. Cuz the numbers that we get from media are usually vastly under than the real deal is.

And a little bit of more worries to my otherwise pro-EU mind came when Spain and Italy were being totally arrogant dicks when they were begging for money. They were the beggars AND choosers in the deal. And we just bent over backwards... That is what I didn't like this time around. That has got to stop! We need to have more influence than we have had and now have. We are a small nation and yet we pay a fuckton...and have no say in anything basically. That is frustrating.

[Arkady Renko]

:lol: Jez, just because chopping off a gangrenous foot appears to be catastrophic, doesnt mean the alternative wont be more so. I wasnt saying it wouldnt be painful, but the sad fact is, pain train's a comin', woo WOOOOOO!!!! And there aint a whole heck of a lot any of these nations are going to do to be able to escape unscathed.

this is exactly my take on it, we're spending (well, rather risking, the money is mostly lent not given) hundreds of billions trying to stave off the inevitable. Italy and Greece are beyond help in my opinion, they're practicall failed states, while portugal, spain and ireland will only make it if they embark on swift and drastic reforms. Portugal and Ireland apparently got the message and may well get better in a few years, Spain still seem to be in denial. But the longer they put judgement day off, the harder it's gonna hit them. BTW, I use the gangrenous limb metaphor a lot as well...


how big is this euro zone pot ?,i know we don't always get the full story from the media but seems theres lots being handed out and not a lot going back in

the provisory rescue funds was loaded with roughly 250 billion euro excluding the approx 70 bn from the first rescue package for Greece. The prospective long term mechanism is supposed to be granted guarantees and cash adding up to about 700 bn euros. How much of the sum from the provisory thingy will be counted into these 700bn is still not entirely clear. But that's not even the worst of it. Seeing how the heads of state agreed (in principle and under certain conditions nobody quite understands) that banks may tap those funds and not only countries, this kind of money is even FAR TOO LITTLE...I just hope that the german constitutional court will bar the government from ratifying this madness.

[Acid Trip]

Oh no, it doesn't offend me at all! I do understand what you are saying perfectly. "at what point does one cut his losses?" That really is a legit question to ask if things keep getting worse. That is why we, the people, need to be informed better about the figures and be more open about the movements of the markets and finances. At the moment, it is more or less cabinet games of the big boys and girls. We don't get informed as well as we should. It would be nice to get some calculations and estimations about the costs of all this. Cuz the numbers that we get from media are usually vastly under than the real deal is.

And a little bit of more worries to my otherwise pro-EU mind came when Spain and Italy were being totally arrogant dicks when they were begging for money. They were the beggars AND choosers in the deal. And we just bent over backwards... That is what I didn't like this time around. That has got to stop! We need to have more influence than we have had and now have. We are a small nation and yet we pay a fuckton...and have no say in anything basically. That is frustrating.

Now you understand how the States feel when Federal government dictates everything. This is also why the US is a Constitutional Republic and the 10th Amendment was created. It's ignored but it's there.

The larger the scale of government the more inefficient it is. The EU is a wonderful example.

[FBD]

Oh no, it doesn't offend me at all! I do understand what you are saying perfectly. "at what point does one cut his losses?" That really is a legit question to ask if things keep getting worse. That is why we, the people, need to be informed better about the figures and be more open about the movements of the markets and finances. At the moment, it is more or less cabinet games of the big boys and girls. We don't get informed as well as we should. It would be nice to get some calculations and estimations about the costs of all this. Cuz the numbers that we get from media are usually vastly under than the real deal is.

And a little bit of more worries to my otherwise pro-EU mind came when Spain and Italy were being totally arrogant dicks when they were begging for money. They were the beggars AND choosers in the deal. And we just bent over backwards... That is what I didn't like this time around. That has got to stop! We need to have more influence than we have had and now have. We are a small nation and yet we pay a fuckton...and have no say in anything basically. That is frustrating.

If things keep getting worse? :lol: They've only gotten worse...and worse-er...and worse-er...and we still have yet to see what worse-est even means. Imho this is LONG past the point where "things have gotten worse" and direct, appropriate action should have been taken, euro dissasembled, shitty countries going back to devaluing their own currencies instead of acting as a boat anchor attached to the world's ankle.

Personally...I think it is *SO* big, *SO* pervasive, that people who have such inside info on the true amount of fuckery involved in all of the world's financial markets and government agreements basically think that if we can just push our way past this then somehow they'll be able to pull a magic trick and turn a house of cards into a mcmansion, when all that's really going to happen is when the table cloth gets pulled, the cards fall...

Looky what we just found out, the whole LIE-bor scandal, the federal reserve knew about...what is it going to take, this is just crazy!!!