|
MADRID – Euphoria over a lifeline of up to 100 billion ($125 billion) torescue Spain's hurting banks morphed into a financial markets routin a matter of hours Monday, as investors digested thestill-undefined plan and became concerned the country may be unableto repay the new loans. The rate on Spanish 10-year bonds — a measure of market trustin a country's ability to repay debt — rose to an alarminglyhigh yield of 6.47 percent at the close of trading after falling to6 percent in the morning. And the benchmark IBEX-35 stock indexclosed down 0.5 percent after surging 6 percent in the morning. Overshadowing Spain's acceptance over the weekend of a bailout forbanks burdened by toxic property assets and loans are Greekelections next weekend and concerns that the anti-bailout left-wingparty Syriza could become the largest party in parliament, puttingthe country's membership in the zone at risk. Investors also zeroed in on Italy, sending its bond yields sharplyhigher amid worries it could be next in line for a bailout becauseof a deepening recession and increasing pressure on theadministration of Premier Mario Monti. And Spain's economy is interrible shape with no sign of improvement anytime soon. "Plenty of risk still remains in place, with question marks overthe ability of Spain to repay the debt, especially, if the countryfails to get back on the growth path, the outcome of the upcomingGreek elections and the perception of situation in Italy," AnitaPaluch of Gekko Global Markets wrote in a note to clients. Spain's bond yield is worrisome because it is perilously close the7 percent rate that is considered unsustainable, and the level thatpushed Greece, Ireland and Portugal to ask for bailouts of theirgovernment finances. While Spain's bailout does not include thegovernment, investors are worried that Spain might eventually beforced into such a situation. The rescue for Spain's banks was portrayed by Spanish and Europeanofficials as a bid to contain Europe's widening recession andfinancial crisis that have hurt companies and investors around theworld. Providing a financial lifeline to Spanish banks was designedto relieve anxiety on the economy. Finance ministers of the 17 nations that use the euro said Saturdaythey would make the loan of up to 100 billion available to theSpanish government to prop up banks laden with non-performing loansand other toxic assets after the collapse of a real estate bubble. Recession-hit Spain, which has the eurozone's fourth-largesteconomy, has yet to say how much of this money it will tap while itwaits for the results of two independent audits of the country'sbanking industry, not due until June 21 — after the Greekelections. The bailout loans will be paid into the Spanishgovernment's Fund for Orderly Bank Restructuring (FROB), whichwould then use the money to strengthen the country's teeteringbanks. In a report released late last week, the International MonetaryFund estimated Spain needs around 40 billion to prop up bankshurting from an unprecedented real estate boom that went bust. Worried investors still don't know precisely how much Spain willseek, and how large a safety margin of extra money it might take tocushion itself against further shocks, such as a deterioration inthe economy already in its second recession in three years withunemployment of nearly 25 percent, the highest in the eurozone. "Markets will certainly ask the question about whether a secondbailout might be required and the margin for error between the sortof euro40 billion the IMF is saying and the 100 billion ceilingin terms of what we heard," said Mark Miller of Capital Economicsin London. He added that with the bailout, Spain's debt-to-gross domesticproduct ratio — which was a relatively low 68.5 percent atthe end of last year — could shoot up to the 90s next year.And bond yields will remain high. If the ratio gets up to Greek levels of 120 percent or so, and10-year yields close in on the near-7-percent levels Spain hitseveral weeks ago "then people will ask that question about asecond bailout" for Spain, Miller said. Another issue is whether the European money comes with stringsattached for the government, and not just an obligation for banksto restructure. When the bailout was announced on Saturday, SpanishEconomy Minister Luis de Guindos said the rescue would not forceany new austerity measures on a government that has already issueda wave of painful measures since taking power in December. Speaking to reporters Sunday, Prime Minister Mariano Rajoy avoidedusing the term 'bailout' to describe the aid, calling it instead acredit line without the strict austerity conditions that haveaccompanied bailouts for Greece, Portugal and Ireland. However, the European Union made clear Monday the money is morethan just a loan. Besides being paid back with interest, there willbe conditions for the Spanish government. "When people lend money, they never do it for free. They want toknow what is done with the money," said Joaquin Almunia, theEuropean Competition Commissioner. "I am not talking about just the obligation to pay back the money,but also some other kind of terms," he told Cadena Ser radio,adding that these remain to be determined. Spain's economy ministry released a statement later saying thepackage includes "the necessary conditionality for the financialsector" but requires no new fiscal consolidation or structuralreforms beyond those the government has already embarked on. The loan will be supervised by the European Commission, theEuropean Central Bank and the IMF, Almunia said. A European Commission spokesman, Amadeu Altafaj, told Spanish statetelevision that this troika will have people on the groundoverseeing the restructuring of the Spanish financial sector.Representatives of the same three groups regularly visit Greece,Ireland and Portugal to make sure the governments in those nationsare complying with bailout terms, Altafaj noted that the European Commission last month recommendedSpain undertake further reforms such as speeding up the phasing ofa higher retirement age — it is to go from 65 to 67 —and raise VAT sales tax. The newspaper El Pais quoted EU officialsMonday as saying these changes and others are part of theconditions that come with the bank rescue package. Adding to the gloomy mood on Monday, the Fitch Ratings agencydowngraded the credit rating of Spain's two largest internationalbanks Banco Santander SA and Banco Bilbao Vizcaya Argentaria SAfrom A to BBB+. The agency said the reasons for the downgrade were primarilybecause Spanish credit rating was downgraded to two notches abovejunk last week, because of a fresh forecast that Spain's falteringeconomy will remain in recession into 2013 "compared to theprevious expectation that the economy would benefit from a mildrecovery in 2013." Banco Santander and BBVA are seen as immune from needing help fromSpain's bank bailout because profits from their internationaloperations have buffered their Spain losses. But Fitch also saidthey could be affected by any downturn that affects operationsoutside Spain. Both are big players in Latin America. "Growth prospects for emerging markets in which Santander and BBVAsubsidiaries operate have been revised down and they are notentirely immune to global economic trends but earnings from thesemarkets will continue to contribute significantly to group earningsat both institutions," Fitch said in a statement. ___ Harold Heckle and Alan Clendenning in Madrid contributed to thisreport. The e-commerce company in China offers quality products such as China Monofilament Filter Fabric , Polyester Screen Mesh, and more. For more , please visit Polyester Filter Fabric today!
Related Articles -
China Monofilament Filter Fabric, Polyester Screen Mesh,
|
