Spain’s ‘lose-lose’ struggle reignites euro crisis

Wednesday, April 11, 2012
By Paul Martin

The eurozone crisis has returned with a vengeance after Spain’s mounting woes pushed 10-year bonds yields back to the danger line of 6pc and the Madrid bourse crashed to its lowest level since the 2009.

By Ambrose Evans-Pritchard
10 Apr 2012

Markets took no notice of fresh austerity pledges from premier Mariano Rajoy, including new cuts worth €10bn in health and education – seen as a belated move to salvage Spain’s credibility after a spat with Brussels over fiscal slippage.

Mr Rajoy said the bond attack should dispel the illusions of those who think Spain can muddle through without serious austerity. “Markets can decide to lend or not to lend, and they can do so at a rate that is affordable or not,” he said.

The country’s borrowing costs have jumped 100 basis points since February, when the European Central Bank last flooded banks with liquidity under its three-year lending scheme (LTRO). “The LTRO was supposed to be the game changer but the stimulus has worn off. It looks like it is falling apart at the seams,” said the Suki Mann from Societe Generale.

A disastrous debt auction last week was taken as a sign that Spanish banks have exhausted their LTRO money and can no longer prop up the Spanish state through this back-door funding, leaving the country nakedly exposed. Other buyers are scarce after the EU imposed a 75pc haircut on investors in Greece.

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