Spanish government credit denied as country’s fiscal woes worsen

Tuesday, June 5, 2012
By Paul Martin
June 5, 2012

MADRID – Spain’s Budget Minister Cristobal Montoro on Tuesday urged euro-zone partners to act faster to help support its enfeebled banks, saying that the government has effectively lost access to capital markets because of steep risk premiums demanded by sovereign bond investors. In making this dramatic admission, Mr. Montoro joined recent calls by the Spanish government for direct aid from European Union institutions for Spanish banks as the government hopes to avoid a full-blown bailout package. The matter has gained urgency after Madrid was forced into a €19 billion ($23.75 billion) rescue of lender Bankia SA, while the government’s borrowing costs have surged to record highs with yields on Spanish 10-year bonds staying above the 6% mark for the third straight week. Midday in Europe, the yield was at 6.37%. By comparison, the yield on the German 10-year bond, considered a haven for investors, was at 1.20%. “What this premium tells us is that the state, and Spain as a whole, has a problem when it comes to accessing markets, when we need to refinance our debt,” Mr. Montoro said in a radio interview. “What that premium says is that Spain doesn’t have the market’s door open, as such, the challenge is to open that door and regain the confidence of those markets, our creditors.” The warning from Madrid was reminiscent of similar alarms over prohibitive borrowing costs sounded by Greece, Portugal and Ireland before entering into bailout talks with such international lenders as the European Union and the International Monetary Fund. However, Mr. Montoro indicated that Europe should allow its institutions to directly recapitalize banks, stressing that a wider rescue plan is an unfeasible and unnecessary option for the euro zone’s fourth-largest economy. Under existing agreements, the euro zone’s bailout funds cannot be used to directly recapitalize banks. “Spain can’t really be bailed out, from a technical point of view,” Mr. Montoro said. -WSJ

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