Belfast Telegraph

Friday 29 August 2014

More pain for Spain over economy

Spain is still under huge financial pressuer because of its ailing economy

Spain is still under intense financial pressure with investors demanding high rates to lend the government money, while the country's politicians battle to avert a full-blown bailout for the economy.

The yield, or interest rate, on Spain's benchmark ten-year bond spiked to 7.65% in the first hour of trading, although it later eased back to 7.45% by early afternoon.

A rate above 7% is deemed untenable over the long term - Spain has been suffering it for several weeks. Should Madrid find it too expensive to raise money from bond markets at such rates, it would have to ask for an international bailout like those sought by Greece, Ireland or Portugal.

The country's benchmark Ibex 35 stock index was up by nearly 2%, recovering only a fraction of the previous three days' heavy losses.

Spain denies it will need financial rescue for its public finances, but many investors now think it is only a matter of time.

The economy is in its second recession in three years, chiefly because of a 2008 collapse of the property bubble that had fuelled it for more than a decade. It is not expected to grow again before 2014 and unemployment is around 25%.

Adding to its concerns, the government also has to rescue its banks, many of which are sitting on soured real estate investments, and some of its 17 regional governments.

A eurozone deal to lend Spain funds to save the banks did little to ease concern over the country's debt levels, since the government will be liable to repay those loans if the banks cannot.

Meanwhile, two regions - Valencia and Murcia - have since Friday said they will tap an emergency credit line the central government recently set up for cash-strapped regions. More are expected to follow.

The powerful north-eastern region of Catalonia said it was also considering requesting help from Madrid, but stressed that the credit line did not constitute a rescue or bailout for the region. Many Spanish regions are so heavily in debt that they cannot raise money on their own on financial markets.

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